Operational Efficiency, Not Green Financing, Drives Indonesian Bank Value, LQ45 Study Finds

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FORMOSA NEWS - Jakarta - A 2026 study by Tri Kartini Putri of Universitas Mercu Buana, Jakarta, finds that operational efficiency and credit risk management play a far greater role in determining Indonesian bank value than green financing initiatives or capital adequacy levels. Published in the Asian Journal of Applied Business and Management, the research analyzes six conventional banks listed in the LQ45 index between 2019 and 2023 and highlights what truly shapes investor confidence in the banking sector. 

The findings matter because Indonesia’s banking sector underpins national economic growth, supports credit distribution, and influences financial stability. As regulators promote sustainable finance and investors increasingly consider ESG factors, understanding which elements actually influence bank valuation is critical for policymakers, financial institutions, and markets.

Banking Performance Under Sustainability Pressure

Banks worldwide face rising expectations to adopt environmentally responsible financing. Indonesia has followed this trend through sustainable finance regulations encouraging green lending and responsible investment strategies.

At the same time, investors continue to monitor traditional financial indicators such as profitability, operational efficiency, credit quality, and capital strength. The tension between sustainability goals and financial fundamentals raises a key question: do green policies immediately translate into higher company value?

Tri Kartini Putri’s research addresses this question by examining how green financing, capital adequacy, credit risk, and operational efficiency interact to influence profitability and firm value in Indonesian banks.

How the Study Was Conducted

The research uses a quantitative causal design based on financial statement data from six conventional commercial banks included in Indonesia’s LQ45 stock index during 2019–2023.

The analysis compares several indicators commonly used in banking performance assessment:

• Green financing exposure
• Capital Adequacy Ratio (CAR)
• Non-Performing Loans (NPL) as a measure of credit risk
• BOPO ratio as an indicator of operational efficiency
• Return on Assets (ROA) as profitability
• Price-to-Book Value (PBV) as firm value

Panel data regression analysis was used to identify both direct and indirect relationships between these variables and determine how profitability mediates their effects.

Key Findings from the Research

The study reveals several clear conclusions about what truly drives bank value in Indonesia:

Green financing shows no significant short-term impact

Green lending initiatives did not significantly influence either profitability or firm value during the observed period. This suggests the market has not yet translated sustainability commitments into valuation premiums.

Capital adequacy also shows no direct valuation effect

Although capital strength is important for regulatory compliance and resilience, investors did not treat it as a decisive factor in determining firm value over the study period.

Credit risk significantly reduces firm value

Higher levels of non-performing loans were strongly associated with lower profitability and lower firm valuation, confirming that asset quality remains one of the most sensitive indicators for investors.

Operational inefficiency undermines market perception

Banks with higher operating costs relative to income experienced declines in both profitability and firm value.

Profitability directly boosts firm value

Return on Assets proved to be a strong positive signal for investors, reinforcing the idea that consistent earnings remain the main driver of valuation.

Profitability mediates efficiency effects

The study shows that operational efficiency contributes to firm value primarily by improving profitability, making profit performance the key transmission channel.

Together, these results indicate that financial fundamentals still dominate investor assessment of banks, while sustainability initiatives may influence valuation only over a longer horizon.

Implications for Banking Strategy and Policy

The findings offer several practical insights.

For bank management

Operational discipline and credit risk control should remain top priorities. While green financing is strategically important, its impact on firm value will likely emerge only after it becomes integrated into core business performance rather than remaining a compliance-oriented initiative.

For investors

The research confirms that market participants continue to rely primarily on financial indicators such as profitability, cost efficiency, and asset quality when evaluating Indonesian banks.

For regulators and policymakers

The study suggests that sustainable finance policies may require longer time horizons before markets recognize them as drivers of firm value. Supporting transparency, standardization, and measurable impact metrics may accelerate this process.

Tri Kartini Putri of Universitas Mercu Buana emphasizes that profitability functions as the key bridge linking operational efficiency to firm value. In other words, efficiency matters because it strengthens earnings, and earnings ultimately shape investor trust.

Why This Research Matters Now

Indonesia’s banking industry is undergoing rapid digital transformation while simultaneously adapting to sustainability demands and global economic shifts.

This study clarifies three important realities:

• Efficient operations remain the foundation of bank competitiveness
• Credit risk management is still the most decisive investor signal
• Green financing may become a value driver in the future, but not immediately

Understanding these dynamics helps explain why banks with strong sustainability programs do not always receive higher market valuations in the short term.

Author Profile

Tri Kartini Putri

Researcher and lecturer at Universitas Mercu Buana, Jakarta, Indonesia.

Her expertise focuses on banking finance, corporate financial performance, and value creation in financial institutions, with research examining how risk management, efficiency, and sustainability policies affect firm value.

Source

Putri, Tri Kartini. 2026.

“Green Credit, Bank Health, and Efficiency on Firm Value of LQ45 Banks.”

Asian Journal of Applied Business and Management.

DOI: https://doi.org/10.55927/ajabm.v5i1.12