The Effect of Liquidity Risk, Credit Risk, and Operational Risk on Banking Financial Performance

Abstract

This study aims to examine the effect of liquidity risk, credit risk, and operational risk on the financial performance of banking companies listed on the Indonesia Stock Exchange during the 2020-2024 period. This study employs a quantitative method using a purposive sampling technique, resulting in 205 observations. However, based on the test results, 26 observations were identified as outliers and were therefore excluded from the research sample. Consequently, the number of observations used in the analysis was reduced to 179. Data analysis was conducted using panel data regression with the assistance of EViews 13 software. The results indicate that liquidity risk, as measured by the Loan to Deposit Ratio (LDR), has a positive effect on financial performance; credit risk, as measured by the Non-Performing Loan (NPL), has a negative effect on financial performance; and operational risk, as measured by Risk-Weighted Assets (RWA), has a positive effect on financial performance. These findings indicate that banking companies need to manage liquidity risk optimally, maintain credit risk at a controlled level, and improve the management of operational risk in order to support the enhancement of the company's financial performance.