Profitability, Capital Adequacy, Credit Risk, and Macroeconomics on Financial Stability: The Role of Firm Size

Abstract

This study aims to analyze the influence of profitability, capital adequacy, credit risk, and macroeconomic variables on the financial stability of banks with firm size as a moderating variable. The background of this study is underpinned by the importance of the role of banking in maintaining the stability of the national economy as well as the inconsistency of previous research results regarding factors affecting the financial stability of banks. This study uses a quantitative approach with a panel data analysis of 42 conventional banks listed on the Indonesian Stock Exchange during the period 2020–2024. Secondary data were obtained from the annual reports of banks, the Financial Services Authority (OJK) and the Bank of Indonesia (BI). The analysis results show that profitability (ROE) has a significant positive effect on financial stability, while the reference interest rate (BI Rate) has a significant negative effect. The variables of capital adequacy (CAR), credit risk (NPL), and inflation have no significant effect on financial stability. The moderating role of firm size strengthens the influence of ROE and CAR on financial stability, yet it does not significantly influence the relationship between NPLs, BI Rate, and inflation. The findings affirm agency theory, monetary transmission theory, and financial stability theory, as well as provide implications for regulators and bank management in strengthening the resilience of national banking systems