The Key to Banking Profitability: Operational Efficiency and Interest Margins Matter More Than Credit Volume

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FORMOSA NEWS

Research conducted by Gita Imelda Farel, Mardiyani, and Agustina from the Management Study Program at Universitas Swadaya Gunung Jati in 2026 reveals that an increase in credit distribution does not automatically boost the profits of conventional banks. Through an analysis of 38 conventional banks listed on the Indonesia Stock Exchange (IDX) for the period 2022–2024, this study highlights that net interest margins and cost efficiency are the primary determinants of a bank's financial health.

Background and Urgency of the Research

Although bank credit distribution experienced strong growth in recent years, data from the Financial Services Authority (OJK) indicates a decline in aggregate total net profits for the banking sector. This contradictory phenomenon raises important questions regarding the effectiveness of the intermediation function and the management of a bank's operational costs in generating profits. Theoretically, increased credit should expand interest income, but bad debt risks and high cost of funds can erode profitability if not carefully managed.

Research Methodology

This study uses an associative causal quantitative approach with path analysis methods via LISREL 10.20 software. Sampling was conducted using a purposive sampling technique on complete annual financial reports from 38 conventional banks during the 2022 to 2024 period, resulting in a total of 114 observation data points. The variables tested include the Loan to Deposit Ratio (LDR) and operational efficiency (BOPO) as independent variables, profitability (ROA) as the dependent variable, and the Net Interest Margin (NIM) as a mediating variable.

Main Findings of the Research

• Credit distribution (LDR) proved to have no significant direct positive effect on bank profitability, indicating that credit quantity must be accompanied by quality and rigorous risk management.

• Operational efficiency (BOPO) has a significant negative effect on profitability, where a surge in operational costs relative to revenues will directly reduce the bank's earnings acquisition.

• Net interest margin (NIM) has a significant positive effect on profitability, affirming that the effectiveness of productive asset management serves as the primary engine driving profits.

• NIM proved to be a mediating variable linking credit distribution activities and cost efficiency to the bank's overall profitability performance.

Implications and Impact for the Banking Sector

The results of this research provide strategic guidance for the banking industry and policymakers so that they do not focus solely on credit expansion volume. According to researchers from Universitas Swadaya Gunung Jati, banks are required to strengthen debtor feasibility analysis, conduct periodic credit monitoring to suppress bad debt risks, and maintain operational cost efficiency so that profits can grow sustainably.

Author Profiles

• Gita Imelda Farel, S.M. (Researcher and student of the Management Study Program at Universitas Swadaya Gunung Jati, with a research focus in finance and banking).
• Mardiyani, S.E., M.M. (Corresponding author and lecturer in the Management Study Program at Universitas Swadaya Gunung Jati, who possesses expertise in financial statement analysis and business management).
• Agustina, S.E., M.Si. (Researcher and academic of the Management Study Program at Universitas Swadaya Gunung Jati, with a research focus on strategic management in the banking sector).

Research Sources

• Journal Article Title: Unveiling the NIM Pathway: How LDR and Efficiency Shape Bank Profitability
• Journal Name: Indonesian Journal of Business Analytics (IJBA), Vol. 6, No. 4 (August) 2026, pp. 1166–1186
• Official DOI: https://doi.org/10.55927/ijba.v6i4.16777