Digital Transformation of Bank Papua Fails to Boost Profitability Due to Regional Structural Constraints

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FORMOSA NEWS

The institutional and digital transformation implemented by Bank Papua from 2015 to 2025 has failed to generate sustainable profitability improvements. This fact is thoroughly revealed by Gracia Billy Mambrasar from Politeknik Negeri Batam, Indonesia, through a ten-year quarterly econometric study. This research is vital in helping bank management, regulators, and investors understand the limitations of banking modernization in regions with peripheral geographical and economic challenges.

Modern banking practices frequently face challenges regarding information asymmetry and efficiency pressures. As a Regional Development Bank (RDB), Bank Papua carries a dual mandate to pursue commercial profitability while driving economic development in Tanah Papua. Its operational region is characterized by high geographic and logistical costs, limited transport connectivity, uneven financial inclusion, and elevated credit risk. Papua's economic growth slowdown to 3.97% in 2025 further indicates that commercial banking expansion heavily relies on local macroeconomic conditions.

To unravel this puzzle of stagnant profits, the study applies a quantitative explanatory design with an Ordinary Least Squares (OLS) regression model based on 44 quarterly observations from 2015 to 2025. The tested variables include the operating expense ratio (BOPO), credit risk via Non-Performing Loans (NPL), liquidity (LDR), capital adequacy (CAR), asset size, regional economic growth, inflation, and a digital transformation dummy variable.

Main findings from this empirical study include:

• Although operational efficiency improved and NPL ratios declined post-transformation, average Return on Assets (ROA) actually dropped from 1.81% to 1.73%, while Return on Equity (ROE) dropped from 13.28% to 12.64%.
• The operating expense ratio (BOPO), credit risk (NPL), and inflation rate proved to have a negative and statistically significant impact on reducing bank profitability.
• Conversely, liquidity (LDR), capital adequacy (CAR), asset scale, and regional economic growth contributed positively and significantly to boosting financial performance.
• The digital transformation variable showed a positive coefficient direction, but was statistically insignificant due to infrastructure limitations and demographic conditions in Papua.

The implications of this research confirm that technology adoption in regional banking does not automatically boost profits without improvements in risk management and operational efficiency. According to Gracia Billy Mambrasar from Politeknik Negeri Batam, digital transformation must be viewed as a long-term strategic investment whose effectiveness is heavily determined by local economic conditions and supporting infrastructure. This policy requires banks and regional governments to align digital innovation with tightened risk governance and realistic market expansion.

Author Profile: Gracia Billy Mambrasar is a researcher at Politeknik Negeri Batam, Indonesia, with expertise in banking finance, econometric analysis, and regional economic transformation.

Research Source: The journal article titled "Transformation Without Profitability? An Econometric Study of Cost Efficiency, Credit Risk, and Regional Economic Constraints in Bank Papua, 2015-2025" published in the Indonesian Journal of Business Analytics (IJBA), Vol. 6, No. 4, August 2026, pages 996-1015. Official DOI: https://doi.org/10.55927/ijba.v6i4.16922.