Factors Affecting Financial Distress in the Banking Sector (Ekopedia Jurnal Ilmiah Ekonomi)

Summary

• The study analyzes a sample of 33 banks listed on the Indonesia Stock Exchange, comprising 363 bank-year observations covering the 2015–2025 period.p.1
• Indonesia's aggregate banking sector exhibited resilience with a Capital Adequacy Ratio (CAR) of around 26% and third-party fund growth of 12.03%.p.3
• Aggregate credit growth in Indonesia slowed down from 10.93% in 2024 to 9.69% at the end of 2025.p.3
• The estimated random-effects panel regression model yields an R-squared of 0.376360, explaining 37.64% of the variation in the Banking Z-score.p.8
• Economic growth exerts a statistically significant positive effect on the Banking Z-score with a coefficient of 0.076595.p.8
• Profitability (ROE) demonstrates a positive and statistically significant relationship with bank stability, having a coefficient of 0.035736.p.8
• Credit risk (NPL) negatively impacts the Banking Z-score with a statistically significant coefficient of -0.097290.p.8

Key insights

1. Economic growth significantly enhances banking stability with a positive coefficient of 0.076595 and a p-value of 0.0002.p.8
2. Exchange rate fluctuations show a negative but statistically insignificant relationship with the Banking Z-score, recording a coefficient of -0.003210 and a p-value of 0.7681.p.8
3. Profitability measured by Return on Equity positively and significantly influences bank stability with a coefficient of 0.035736 and a p-value of 0.0000.p.8
4. The four independent variables jointly demonstrate a significant overall impact on the Banking Z-score with an F-statistic of 54.01222.p.8
5. The 2023 IMF Global Financial Stability Report estimated that banks representing about 5% of global banking assets could face severe capital stress under high interest rate conditions.p.3