Main Article Content
Abstract
Purpose – this research examines the effect of liquidity risk as measured by the loan to deposit ratio (LDR), bank capital as measured by the capital adequacy ratio (CAR), credit risk as measured by non-performing loans (NPL) and third-party funds (TPF). on profitability as measured by return on assets (ROA). The research also tests whether credit risk can be an intervening variable in the influence of LDR, CAR and TPF on profitability
Design/methodology/approach – The population of this research is 42 conventional banks on the Indonesia Stock Exchange (BEI), with a sample of 24 banks taken using purposive sampling technique. The observation period is 4 years with quarterly data. Hypothesis testing uses multiple regression analysis tools with a significance level of 0.05
Findings – The research results show that liquidity risk has a significant positive effect on profitability, credit risk has a significant negative effect on profitability. Meanwhile, capital and third-party funds have no effect on profitability. Another result turns out that credit risk can only be an intervening variable in the influence of liquidity risk on profitability.
Research limitations/implications – This research only tested three independent variables and one intervening variable. Besides that, this research uses multiple regression analysis, so that future researchers can research further by adding variables that influence profitability and can use panel data regression analysis.
Practical implications – It is hoped this research can be used by bank management in its efforts to increase profitability by considering four variables that influence it and shows the role of credit risk in mediating the influence of independent variables on profitability.
Originality/value – The novelty in this research is including the role of credit risk as an intervening variable which is still rarely researched.
Keywords
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References
- Abbas, F., Iqbal, S., & Aziz, B. (2019). The impact of bank capital, bank liquidity and credit risk on profitability in postcrisis period: A comparative study of US and Asia. Cogent Economics & Finance, 7(1), 1605683. https://doi.org/10.1080/23322039.2019.1605683
- Abusharbeh, M., Triyuwono, I., Ismail, M., & Aulia Rahman, F. (2013). Determinants of Capital Adequacy Ratio (CAR) in Indonesian Islamic Commercial Banks. Global Review of Accounting and Finance, 4, 159–170.
- Ajayi, J. A., & Lawal, Q. A. (2021). Effect of Liquidity Management on Banks Profitability. Business & Management Compass, 2, 220–237. https://econpapers.repec.org/RePEc:vrn:journl:y:2021:i:2:p:220-237
- Alajmi, M., & Alqasem, K. (2015). Determinants of capital adequacy ratio in Kuwaiti banks. Journal of Governance and Regulation, 4(4), 315–322. https://doi.org/10.22495/jgr_v4_i4_c2_p3
- Ali, M., & Puah, C. H. (2019). The internal determinants of bank profitability and stability: An insight from banking sector of Pakistan. Management Research Review, 42(1), 49–67. https://doi.org/10.1108/MRR-04-2017-0103
- Ali, S. W., Kashif, A. R., Hammad, M., Ahmad, S., & Raza, A. (2024). Impact of Credit Risk Management on Bank’s Performance: Empirical Study on Commercial Banks of Pakistan. Journal of Policy Research, 10(2), 144–152. https://doi.org/10.61506/02.00216
- Arintoko, A. (2021). Internal Factors Affecting Commercial Bank Lending: Symmetric and Asymmetric Effects of Macro-Level Data Evidence. Jurnal Keuangan Dan Perbankan, 25(3), 717–733. https://doi.org/10.26905/jkdp.v25i3.5760
- Belkhaoui, S., Alsagr, N., & van Hemmen, S. F. (2020). Financing modes, risk, efficiency and profitability in Islamic banks: Modeling for the GCC countries. Cogent Economics & Finance, 8(1), 1750258. https://doi.org/10.1080/23322039.2020.1750258
- Bhati, S., De Zoysa, A., & Jitaree, W. (2019). Factors affecting the liquidity of commercial banks in India: a longitudinal analysis. Banks and Bank Systems, 14(4), 78–88. https://doi.org/10.21511/bbs.14(4).2019.08
- Bhattarai, B. P. (2019). Effect of Credit Risk Management on Financial Performance of Commercial Banks in Nepal. European Journal of Accounting, Auditing and Finance Research, 7(5), 87–103.
- Dao, B. T. T., & Nguyen, K. A. (2020). Bank capital adequacy ratio and bank performance in Vietnam: A simultaneous equations framework. Journal of Asian Finance, Economics and Business, 7(6), 39–46. https://doi.org/10.13106/JAFEB.2020.VOL7.NO6.039
- Derbali, A. (2021). Determinants of the performance of Moroccan banks. Journal of Business and Socio-Economic Development, 1(1), 102–117. https://doi.org/10.1108/JBSED-01-2021-0003
- Hamza, S. M. (2017). Impact of Credit Risk Management on Banks Performance: A Case Study in Pakistan Banks. European Journal of Business and Management, 9(1), 57–64.
- Hermuningsih, S., Sari, P. P., & Rahmawati, A. D. (2020). the Influence of Third-Party Funds, Non-Performing Loans (Npl) on Credit Distribution With Profitability As Intervening Variable in Commercial Banks. International Journal of Economics, Business and Accounting Research (IJEBAR), 4(02), 40–50. https://doi.org/10.29040/ijebar.v4i02.988
- Hosen, M. N., Lathifah, F., & Jie, F. (2021). Perception and expectation of customers in Islamic bank perspective. Journal of Islamic Marketing, 12(1), 1–19. https://doi.org/10.1108/JIMA-12-2018-0235
- Hosen, M. N., Muhari, S., & Costner Kardius, K. (2021). The Effects of Productivity and Liquidity on the Profitability of Islamic Banks in Indonesia. Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah, 13(2), 411–430. https://doi.org/10.15408/aiq.v13i2.22585
- Huong, T. T. X., Nga, T. T. T., & Oanh, T. T. K. (2021). Liquidity risk and bank performance in Southeast Asian countries: a dynamic panel approach. Quantitative Finance and Economics, 5(1), 111–133. https://doi.org/10.3934/QFE.2021006
- Ikpesu, F., & Oke, B. O. (2022). Capital Adequacy, Asset Quality and Banking Sector Performance. Acta Universitatis Danubius. OEconomica, 18(3), 22–32. https://econpapers.repec.org/RePEc:dug:actaec:y:2022:i:3:p:22-32
- Islam, A., Farooq, M., & Ahmad, A. (2017). Factors Affecting Liquidity Position of Islamic Banks. 27–36.
- Karim, N. A., Al-Habshi, S. M. S. J., & Abduh, M. (2016). Macroeconomics Indicators and Bank Stability: A Case Of Banking In Indonesia. Buletin Ekonomi Moneter Dan Perbankan, 18(4), 431–448. https://doi.org/10.21098/bemp.v18i4.609
- Kartika, D. A. (2024). Data Penghimpunan Dana Pihak Ketiga dan Rasio LDR Perbankan pada 2023. DataIndonesia.Id. https://dataindonesia.id/keuangan/detail/data-penghimpunan-dana-pihak-ketiga-dan-rasio-ldr-perbankan-pada-2023
- Kinanti, A. R., & Purwohandoko, P. (2017). INFLUENCE OF THIRD-PARTY FUNDS, CAR, NPF AND FDR TOWARDS THE RETURN ON ASSETS OF ISLAMIC BANKS IN INDONESIA. JEMA: Jurnal Ilmiah Bidang Akuntansi Dan Manajemen, 14(02), 135. https://doi.org/10.31106/jema.v14i02.524
- Kontan. (2023). OJK Catat Kredit Macet (NPL) Perbankan Mengalami Kenaikan pada Juli 2023. KEUANGAN / BANK. https://keuangan.kontan.co.id/news/ojk-catat-kredit-macet-npl-perbankan-mengalami-kenaikan-pada-juli-2023
- Laryea, E., Ntow-Gyamfi, M., & Alu, A. A. (2016). Nonperforming loans and bank profitability: evidence from an emerging market. African Journal of Economic and Management Studies, 7(4), 462–481. https://doi.org/10.1108/AJEMS-07-2015-0088
- Lembong, H. S. (2020). The Effect of Profitability on Dividend Policy in Indonesian State-Owned Banks. Journal of International Conference Proceedings, 3(2), 121–130. https://doi.org/10.32535/jicp.v0i0.911
- Mehzabin, S., Shahriar, A., Hoque, M. N., Wanke, P., & Azad, M. A. K. (2023). The effect of capital structure, operating efficiency and non-interest income on bank profitability: new evidence from Asia. Asian Journal of Economics and Banking, 7(1), 25–44. https://doi.org/10.1108/AJEB-03-2022-0036
- Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115. https://doi.org/10.1108/jfra-05-2015-0060
- Mir, S. M., & Shah, F. A. (2022). Does Capital Adequacy Affect Bank Performance? A Comparative Study of Select Public and Private Sector Banks in India. DLSU Business and Economics Review, 31(2), 34–52.
- Muslim, & Hamzah, A. (2022). Several Factors Affecting Firm Value Manufacturing in Indonesia. Jurnal Akuntansi, 26(1), 127. https://doi.org/10.24912/ja.v26i1.821
- Pradana, T., Diana, I. N., & Rofiq, A. (2022). The Effect of Third Party Funds on the Profitability. Tabbaru, 5(1).
- Jurnal Tabarru’: Islamic Banking and Finance, 5(1), 150–157. https://doi.org/10.25299/jtb.2022.vol5(1).9192
- Rasheed, A., Shahzad, K., Conroy, C., Nadeem, S., & Siddqiue, M. (2017). Exploring the role of employee voice between high-performance work system and organizational innovation in small and medium enterprises. Journal of Small Business and Enterprise Development, 24. https://doi.org/10.1108/JSBED-11-2016-0185
- Rivai, V., Basir, S., Sudarto, S., & Veithzal, A. P. (2013). Commercial Bank Management : Manajemen perbankan dari teori ke praktik. Rajawali Pers.
- Sari, Y. A. N., & Murni, M. N. S. (2017). Analysis of the effect of third party fund, capital adequacy ratio, and loan to deposit ratio on bank‟s profitability after the application of IFRS. The Indonesian Accounting Review, 6(1), 81–90. https://doi.org/10.14414/tiar.v6i1.855
- Sari, Y. S., Ardiansari, A., & Widia, S. (2022). The Effect of Capital Adequacy, Market Risk, Credit Risk, Operational Risk and Liquidity on the Profitability (Case Study on Sharia Banks Registered in OJK Period 2010-2019). https://doi.org/10.2991/aebmr.k.220104.033
- Shafi’i, & Rusliati. (2016). Effect Of Credit Risk, Liquidity Risk, And Operational Risk On Profitability. International Journal of Administration, Business and Management, 4(1), 52–73.
- Shrestha, P. M., & Khadka, K. K. (2024). Impact of Non-Performing Loan on Profitability of Nepalese Commercial Banks. Researcher CAB: A Journal for Research and Development, 3(1), 62–75. https://doi.org/10.3126/rcab.v3i1.68422
- Siddique, A., Khan, M. A., & Khan, Z. (2022). The effect of credit risk management and bank-specific factors on the financial performance of the South Asian commercial banks. Asian Journal of Accounting Research, 7(2), 182–194. https://doi.org/10.1108/AJAR-08-2020-0071
- Sidharta, R. B. F. I., Anggriani, R., Ibrahim, I. D. K., & Marchyta, N. K. (2023). Profitability: Third Party Funds and Credit Risk Study on Indonesian Digital Banking. Target: Jurnal Manajemen Dan Bisnis, 4(2), 213–220. https://doi.org/10.30812/target.v4i2.2622
- Syafi’i, M. F. R., & Rusliati, E. (2016). Credit Risk, Market Risk, Operational Risk and Liquidity Risk on Profitability of Banks in Indonesia. Trikonomika, 15(2), 78–88.
References
Abbas, F., Iqbal, S., & Aziz, B. (2019). The impact of bank capital, bank liquidity and credit risk on profitability in postcrisis period: A comparative study of US and Asia. Cogent Economics & Finance, 7(1), 1605683. https://doi.org/10.1080/23322039.2019.1605683
Abusharbeh, M., Triyuwono, I., Ismail, M., & Aulia Rahman, F. (2013). Determinants of Capital Adequacy Ratio (CAR) in Indonesian Islamic Commercial Banks. Global Review of Accounting and Finance, 4, 159–170.
Ajayi, J. A., & Lawal, Q. A. (2021). Effect of Liquidity Management on Banks Profitability. Business & Management Compass, 2, 220–237. https://econpapers.repec.org/RePEc:vrn:journl:y:2021:i:2:p:220-237
Alajmi, M., & Alqasem, K. (2015). Determinants of capital adequacy ratio in Kuwaiti banks. Journal of Governance and Regulation, 4(4), 315–322. https://doi.org/10.22495/jgr_v4_i4_c2_p3
Ali, M., & Puah, C. H. (2019). The internal determinants of bank profitability and stability: An insight from banking sector of Pakistan. Management Research Review, 42(1), 49–67. https://doi.org/10.1108/MRR-04-2017-0103
Ali, S. W., Kashif, A. R., Hammad, M., Ahmad, S., & Raza, A. (2024). Impact of Credit Risk Management on Bank’s Performance: Empirical Study on Commercial Banks of Pakistan. Journal of Policy Research, 10(2), 144–152. https://doi.org/10.61506/02.00216
Arintoko, A. (2021). Internal Factors Affecting Commercial Bank Lending: Symmetric and Asymmetric Effects of Macro-Level Data Evidence. Jurnal Keuangan Dan Perbankan, 25(3), 717–733. https://doi.org/10.26905/jkdp.v25i3.5760
Belkhaoui, S., Alsagr, N., & van Hemmen, S. F. (2020). Financing modes, risk, efficiency and profitability in Islamic banks: Modeling for the GCC countries. Cogent Economics & Finance, 8(1), 1750258. https://doi.org/10.1080/23322039.2020.1750258
Bhati, S., De Zoysa, A., & Jitaree, W. (2019). Factors affecting the liquidity of commercial banks in India: a longitudinal analysis. Banks and Bank Systems, 14(4), 78–88. https://doi.org/10.21511/bbs.14(4).2019.08
Bhattarai, B. P. (2019). Effect of Credit Risk Management on Financial Performance of Commercial Banks in Nepal. European Journal of Accounting, Auditing and Finance Research, 7(5), 87–103.
Dao, B. T. T., & Nguyen, K. A. (2020). Bank capital adequacy ratio and bank performance in Vietnam: A simultaneous equations framework. Journal of Asian Finance, Economics and Business, 7(6), 39–46. https://doi.org/10.13106/JAFEB.2020.VOL7.NO6.039
Derbali, A. (2021). Determinants of the performance of Moroccan banks. Journal of Business and Socio-Economic Development, 1(1), 102–117. https://doi.org/10.1108/JBSED-01-2021-0003
Hamza, S. M. (2017). Impact of Credit Risk Management on Banks Performance: A Case Study in Pakistan Banks. European Journal of Business and Management, 9(1), 57–64.
Hermuningsih, S., Sari, P. P., & Rahmawati, A. D. (2020). the Influence of Third-Party Funds, Non-Performing Loans (Npl) on Credit Distribution With Profitability As Intervening Variable in Commercial Banks. International Journal of Economics, Business and Accounting Research (IJEBAR), 4(02), 40–50. https://doi.org/10.29040/ijebar.v4i02.988
Hosen, M. N., Lathifah, F., & Jie, F. (2021). Perception and expectation of customers in Islamic bank perspective. Journal of Islamic Marketing, 12(1), 1–19. https://doi.org/10.1108/JIMA-12-2018-0235
Hosen, M. N., Muhari, S., & Costner Kardius, K. (2021). The Effects of Productivity and Liquidity on the Profitability of Islamic Banks in Indonesia. Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah, 13(2), 411–430. https://doi.org/10.15408/aiq.v13i2.22585
Huong, T. T. X., Nga, T. T. T., & Oanh, T. T. K. (2021). Liquidity risk and bank performance in Southeast Asian countries: a dynamic panel approach. Quantitative Finance and Economics, 5(1), 111–133. https://doi.org/10.3934/QFE.2021006
Ikpesu, F., & Oke, B. O. (2022). Capital Adequacy, Asset Quality and Banking Sector Performance. Acta Universitatis Danubius. OEconomica, 18(3), 22–32. https://econpapers.repec.org/RePEc:dug:actaec:y:2022:i:3:p:22-32
Islam, A., Farooq, M., & Ahmad, A. (2017). Factors Affecting Liquidity Position of Islamic Banks. 27–36.
Karim, N. A., Al-Habshi, S. M. S. J., & Abduh, M. (2016). Macroeconomics Indicators and Bank Stability: A Case Of Banking In Indonesia. Buletin Ekonomi Moneter Dan Perbankan, 18(4), 431–448. https://doi.org/10.21098/bemp.v18i4.609
Kartika, D. A. (2024). Data Penghimpunan Dana Pihak Ketiga dan Rasio LDR Perbankan pada 2023. DataIndonesia.Id. https://dataindonesia.id/keuangan/detail/data-penghimpunan-dana-pihak-ketiga-dan-rasio-ldr-perbankan-pada-2023
Kinanti, A. R., & Purwohandoko, P. (2017). INFLUENCE OF THIRD-PARTY FUNDS, CAR, NPF AND FDR TOWARDS THE RETURN ON ASSETS OF ISLAMIC BANKS IN INDONESIA. JEMA: Jurnal Ilmiah Bidang Akuntansi Dan Manajemen, 14(02), 135. https://doi.org/10.31106/jema.v14i02.524
Kontan. (2023). OJK Catat Kredit Macet (NPL) Perbankan Mengalami Kenaikan pada Juli 2023. KEUANGAN / BANK. https://keuangan.kontan.co.id/news/ojk-catat-kredit-macet-npl-perbankan-mengalami-kenaikan-pada-juli-2023
Laryea, E., Ntow-Gyamfi, M., & Alu, A. A. (2016). Nonperforming loans and bank profitability: evidence from an emerging market. African Journal of Economic and Management Studies, 7(4), 462–481. https://doi.org/10.1108/AJEMS-07-2015-0088
Lembong, H. S. (2020). The Effect of Profitability on Dividend Policy in Indonesian State-Owned Banks. Journal of International Conference Proceedings, 3(2), 121–130. https://doi.org/10.32535/jicp.v0i0.911
Mehzabin, S., Shahriar, A., Hoque, M. N., Wanke, P., & Azad, M. A. K. (2023). The effect of capital structure, operating efficiency and non-interest income on bank profitability: new evidence from Asia. Asian Journal of Economics and Banking, 7(1), 25–44. https://doi.org/10.1108/AJEB-03-2022-0036
Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115. https://doi.org/10.1108/jfra-05-2015-0060
Mir, S. M., & Shah, F. A. (2022). Does Capital Adequacy Affect Bank Performance? A Comparative Study of Select Public and Private Sector Banks in India. DLSU Business and Economics Review, 31(2), 34–52.
Muslim, & Hamzah, A. (2022). Several Factors Affecting Firm Value Manufacturing in Indonesia. Jurnal Akuntansi, 26(1), 127. https://doi.org/10.24912/ja.v26i1.821
Pradana, T., Diana, I. N., & Rofiq, A. (2022). The Effect of Third Party Funds on the Profitability. Tabbaru, 5(1).
Jurnal Tabarru’: Islamic Banking and Finance, 5(1), 150–157. https://doi.org/10.25299/jtb.2022.vol5(1).9192
Rasheed, A., Shahzad, K., Conroy, C., Nadeem, S., & Siddqiue, M. (2017). Exploring the role of employee voice between high-performance work system and organizational innovation in small and medium enterprises. Journal of Small Business and Enterprise Development, 24. https://doi.org/10.1108/JSBED-11-2016-0185
Rivai, V., Basir, S., Sudarto, S., & Veithzal, A. P. (2013). Commercial Bank Management : Manajemen perbankan dari teori ke praktik. Rajawali Pers.
Sari, Y. A. N., & Murni, M. N. S. (2017). Analysis of the effect of third party fund, capital adequacy ratio, and loan to deposit ratio on bank‟s profitability after the application of IFRS. The Indonesian Accounting Review, 6(1), 81–90. https://doi.org/10.14414/tiar.v6i1.855
Sari, Y. S., Ardiansari, A., & Widia, S. (2022). The Effect of Capital Adequacy, Market Risk, Credit Risk, Operational Risk and Liquidity on the Profitability (Case Study on Sharia Banks Registered in OJK Period 2010-2019). https://doi.org/10.2991/aebmr.k.220104.033
Shafi’i, & Rusliati. (2016). Effect Of Credit Risk, Liquidity Risk, And Operational Risk On Profitability. International Journal of Administration, Business and Management, 4(1), 52–73.
Shrestha, P. M., & Khadka, K. K. (2024). Impact of Non-Performing Loan on Profitability of Nepalese Commercial Banks. Researcher CAB: A Journal for Research and Development, 3(1), 62–75. https://doi.org/10.3126/rcab.v3i1.68422
Siddique, A., Khan, M. A., & Khan, Z. (2022). The effect of credit risk management and bank-specific factors on the financial performance of the South Asian commercial banks. Asian Journal of Accounting Research, 7(2), 182–194. https://doi.org/10.1108/AJAR-08-2020-0071
Sidharta, R. B. F. I., Anggriani, R., Ibrahim, I. D. K., & Marchyta, N. K. (2023). Profitability: Third Party Funds and Credit Risk Study on Indonesian Digital Banking. Target: Jurnal Manajemen Dan Bisnis, 4(2), 213–220. https://doi.org/10.30812/target.v4i2.2622
Syafi’i, M. F. R., & Rusliati, E. (2016). Credit Risk, Market Risk, Operational Risk and Liquidity Risk on Profitability of Banks in Indonesia. Trikonomika, 15(2), 78–88.