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All Journal Movere Journal Priviet Social Sciences Journal
Baharuddin Baharuddin
Institut Bisnis Dan Keuangan Nitro Makassar
Decision Sciences, Operations Research & Management Economics, Econometrics & Finance Education Environmental Science Law, Crime, Criminology & Criminal Justice Social Sciences

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The capital buffer paradox: Strong heterogeneity in profitability determinants between small and over capitalized banks in Indonesia Baharuddin Baharuddin; Budi Krisnanto; Abdul Gafar Samalam; Muhammad Rizal
Priviet Social Sciences Journal Vol. 5 No. 12 (2025): December 2025
Publisher : Privietlab

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.55942/pssj.v5i12.1053

Abstract

The Indonesian banking sector faces a paradox of maintaining high capital buffers for stability while pursuing profitability amid digital disruption. This study examines the profitability determinants of conventional commercial banks, with a novel focus on testing the moderating role of the Capital Adequacy Ratio (CAR) in the loan-to-deposit ratio (LDR) and return on assets (ROA) relationship a mechanism hypothesized to explain previous empirical inconsistencies. Using quarterly panel data from 43 banks from Q1 2020 to Q3 2025 (989 observations) and a Fixed Effects model corrected with robust standard errors, the results reveal three key findings. First, the moderation hypothesis is rejected; high capital buffers do not significantly alter the impact of LDR on ROA. Second, operational efficiency (BOPO) proves to be the most consistent and dominant determinant of profitability. Most importantly, the key contribution lies in the discovery of sharp heterogeneity: traditional determinant models exhibit very strong explanatory power (R² = 66%) for small banks (CAR ≤ 25.1%) but fail to explain profitability for large, over capitalized banks (R² = 26.1%), where no traditional variables are significant. This demonstrates that profitability drivers evolve with bank scale, rendering one size fits all policy and strategic approaches ineffective. Consequently, regulators must implement differentiated macroprudential policies, while bank management should tailor core strategies based on their specific segment.
Efek Penyangga Modal Terhadap Transmisi Kebijakan Moneter Pada Kredit Perbankan Indonesia Baharuddin Baharuddin; Feronica Fungky Muchsidin; A.We Tenri Fatimah Singkeruang; Nuraeni Saeni
Movere Journal Vol. 8 No. 1 (2026)
Publisher : Sekolah Tinggi Ilmu Ekonomi (STIE) Tri Dharma Nusantara Makassar

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.53654/mv.v8i1.747

Abstract

This study aims to analyse the determinants and dynamics of Indonesian bank credit growth after the pandemic, focusing on monetary-policy transmission and the moderating role of capital buffer. Using an explanatory quantitative approach, quarterly panel data of 47 commercial banks (Q12020 – Q22025) were estimated with two-step System Generalized Method of Moments (System-GMM). Results show that credit growth exhibits negative dynamic persistence, capital buffer has a significant positive effect, while profitability and macroeconomic variables are insignificant. The central finding is a significantly negative interaction between capital buffer and the BI Rate, validating a capital-hoarding mechanism: well-capitalised banks restrain credit expansion when the policy rate rises. The results are robust to alternative specifications and instrument-validity tests. The study contributes a “Conditional Bank Lending” framework and recommends a dual-speed monetary transmission approach and a more responsive countercyclical capital buffer.
Co-Authors A.We Tenri Fatimah Singkeruang Abdul Gafar Samalam Budi Krisnanto Muchsidin, Feronica Fungky Muhammad Rizal Nuraeni Saeni