DOES DIGITALIZATION MODERATE THE EFFECT OF INTERNAL FACTORS ON CONVENTIONAL BANK STABILITY? EVIDENCE FROM INDONESIA

Authors

  • Rifki Azis Syahrizal Universitas Dian Nuswantoro
  • Entot Suhartono Universitas Dian Nuswantoro
  • Zaky Machmuddah Universitas Dian Nuswantoro
  • Arditya Dian Andika Universitas Dian Nuswantoro

DOI:

https://doi.org/10.36563/f399gd12

Keywords:

Banking Stability, Income Ratio, Loan Loss Provision to Total Loans, Bank Size, Liquidity Ratio

Abstract

Examination of the moderating function is the objective of this investigation of banking digitalization in addition to examining the effects of the Cost-to-Income Ratio, Loan Loss Provision to Total Loans, Bank Size, and Liquidity Ratio on banking stability. Although previous research has extensively investigated the impact of digitalization on banking stability, empirical findings regarding its function as a moderator in the relationship between banks' internal determinants and banking stability are still scarce, particularly for the conventional commercial institutions in developing countries such as Indonesia. Whether the effects of banks' internal determinants on banking stability are strengthened or weakened by banking digitalization is the focus of this study. During the 2020–2025 period, this study analyzed panel data from 47 conventional commercial banks listed on the Indonesia Stock Exchange using a quantitative approach, resulting in 282 observations. The Z-Score is employed as a metric for banking stability, while the IT Cost Ratio is employed to assess digitalization. Using a Moderated Regression Analysis approach, the data are analyzed using panel data regression. According to the findings, the Cost-to-Income Ratio and Bank Size have a significant and adverse impact on banking stability, whereas the Liquidity Ratio and Loan Loss Provision to Total Loans have a positive and significant impact. The Liquidity Ratio's beneficial impact on banking stability is further bolstered by the digitalization of banking.

Downloads

Download data is not yet available.

References

Adebayo, O., Mensah, N., & Tobias Kwame Adukpo. (2025). Navigating liquidity management challenges in the era of digital banking in the United States. World Journal of Advanced Research and Reviews, 25(2), 2711–2719. https://doi.org/10.30574/wjarr.2025.25.2.0576

Ahmad, S., Wan, W. M. A., & Shaharuddin, S. S. (2022). Is excess of everything bad? Ramifications of excess liquidity on bank stability: Evidence from the dual banking system. Borsa Istanbul Review, 22, S92–S107. https://doi.org/10.1016/j.bir.2022.09.008

Akbary, N. M. M., Trinugroho, I., Risfandy, T., & Pamungkas, P. (2025). Digital transformation and efficiency: Evidence from Indonesian banks. International Journal of Business and Society, 26(1), 135–150. https://doi.org/10.33736/ijbs.9555.2025

Akmal, M. R., Pribadi, M. I., & Anshari, R. (2025). Pengaruh Ukuran Perusahaan dan Risiko Kredit terhadap Stabilitas Keuangan Bank di Indonesia Periode 2019-2023. GEMILANG: Jurnal Manajemen Dan Akuntansi, 5(2), 766–782. https://doi.org/10.56910/gemilang.v5i2.2570

Andersen, T. B., & Jensen, P. S. (2022). Too Big to Fail and Moral Hazard: Evidence from an Epoch of Unregulated Commercial Banking. IMF Economic Review, 70(4), 808–830. https://doi.org/10.1057/s41308-022-00167-7

Aniemeke, E. H. (2024). Determinants of Bank Stability in Nigeria. American Journal of Economics and Business Innovation, 3(2), 85–93. https://doi.org/10.54536/ajebi.v3i2.2675

Barakat, H. A. (2025). Banking soundness and systemic risk: Insights from the Egyptian banking sector. International Journal of Innovative Research and Scientific Studies, 8(2), 4322–4333. https://doi.org/10.53894/ijirss.v8i2.6305

Begimkulov, E. (2025). Bank digitalization and financial stability in Central Asia: Assessing risk and resilience. Journal of Eastern European and Central Asian Research (JEECAR), 12(1), 17–30. https://doi.org/10.15549/jeecar.v12i1.2100

Budhathoki, P. B., Bhattarai, G., Aryal, N. P., & Ghimire, S. R. (2024). The Bank Concentration and Risk Exposure: Empirical Insights from Asian Countries. Nepal Journal of Multidisciplinary Research, 7(2), 12–29. https://doi.org/10.3126/njmr.v7i2.68190

Chen, I.-J., Tsai, H., Chen, Y.-S., Lin, W. C., & Li, T.-Y. (2025). Bank performance and liquidity management. Review of Quantitative Finance and Accounting, 64(4), 1453–1490. https://doi.org/10.1007/s11156-024-01342-9

Chernobai, A., Ozdagli, A., & Wang, J. (2021). Business complexity and risk management: Evidence from operational risk events in U.S. bank holding companies. Journal of Monetary Economics, 117, 418–440. https://doi.org/10.1016/j.jmoneco.2020.02.004

Chuesta, R. N. B., Sanga, K. P., & Gheta, A. P. K. (2024). Peran Agency Theory Terkait Manajemen Risiko Kredit dalam Upaya Meminimalisir Kredit Bermasalah pada KSP Kopdit Obor Mas Kanca Pasar Alok. BUDGETING : Journal of Business, Management and Accounting, 5(2), 1354–1359. https://doi.org/10.31539/budgeting.v5i2.9215

Connelly, B. L., Certo, S. T., Reutzel, C. R., DesJardine, M. R., & Zhou, Y. S. (2025). Signaling Theory: State of the Theory and Its Future. Journal of Management, 51(1), 24–61. https://doi.org/10.1177/01492063241268459

Faiz, F., Le, V., & Masli, E. K. (2024). Determinants of digital technology adoption in innovative SMEs. Journal of Innovation & Knowledge, 9(4), 100610. https://doi.org/10.1016/j.jik.2024.100610

Farooq, M., Al-Jabri, Q., Saleem, H. M. N., Munir, M., & Zulqarnain, M. (2026). Does family ownership moderate the relationship between working capital management and financial distress? Empirical evidence. South Asian Journal of Business Studies, 1–25. https://doi.org/10.1108/SAJBS-01-2024-0045

Gan, Y. (2024). Research on the Influence Mechanism of the Agency Problem on Financial Stability from the Perspective of Economics and Sociology. Advances in Economics, Management and Political Sciences, 85(1), 41–46. https://doi.org/10.54254/2754-1169/85/20240835

Gungor, S. (2023). Bank-Specific Determinants of Financial Stability in Participation Banks: Fresh Evidence from the Driscoll-Kraay Estimator. International Journal of Business and Economic Studies, 5(3), 166–181. https://doi.org/10.54821/uiecd.1333150

Hani, F., Saputri, I. P., & Randyantini, V. (2025). Capital Adequacy, Credit Risk, and Efficiency in Islamic Bank Profitability. Involvement International Journal of Business, 2(2), 120–130. https://doi.org/10.62569/iijb.v2i2.116

Huynh, J. (2025). Digital Transformation and Bank Liquidity Creation: Evidence From a Bank-Based Market. Sage Open, 15(4). https://doi.org/10.1177/21582440251390670

Javid, M., Chandia, K. E., Zaman, Q. U., & Akhter, W. (2023). Examining the effect of liquidity creation on banking profitability and stability: moderating role of political instability. Kybernetes, 52(10), 4061–4080. https://doi.org/10.1108/K-01-2022-0021

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X

Jia, K., & Liu, X. (2024). Bank digital transformation, bank competitiveness and systemic risk. Frontiers in Physics, 11. https://doi.org/10.3389/fphy.2023.1297912

Karunaratne, T., Ajiero, I. R., Joseph, R., Farr, E., & Piroozfar, P. (2025). Evaluating the Economic Impact of Digital Twinning in the AEC Industry: A Systematic Review. Buildings, 15(14), 2583. https://doi.org/10.3390/buildings15142583

Khattak, M. A., Ali, M., Azmi, W., & Rizvi, S. A. R. (2023). Digital transformation, diversification and stability: What do we know about banks? Economic Analysis and Policy, 78, 122–132. https://doi.org/10.1016/j.eap.2023.03.004

Kim, Q. T. N. (2022). The Effect of Agency Problem and Internal Control on Credit Risk at Commercial Banks in Vietnam. International Journal of Asian Business and Information Management, 13(1), 1–22. https://doi.org/10.4018/IJABIM.305114

Kismawadi, E. R. (2025). Improving Islamic bank performance through agency cost and dual board governance. Journal of Islamic Accounting and Business Research, 16(3), 461–483. https://doi.org/10.1108/JIABR-01-2023-0035

Lewano, A. K., Kalunda, E., & Wambalaba, F. W. (2025). Influence of Credit Risk on Intermediation Efficiency of Commercial Banks in Kenya. African Journal of Business and Development Studies, 2(1), 554–566. https://doi.org/10.70641/ajbds.v2i1.163

Lim, K. Y., Liu, C., & Tan, L. (2025). Loan Loss Provision, Unsecured-Collateralized Loan Choice and Macro-Stability in China. The B.E. Journal of Macroeconomics, 25(2), 847–884. https://doi.org/10.1515/bejm-2025-0101

Limon, A. (2025). Exploring the Role of Bank-Specific Factors in Nonperforming Loans: A Study of Islamic Banks in Bangladesh. Asian Journal of Managerial Science, 14(1), 1–7. https://doi.org/10.70112/ajms-2025.14.1.4256

Liu, Y., Abdul Rahman, A., Imna Mohd Amin, S., & Ja’afar, R. (2025). Navigating fintech and banking risks: insights from a systematic literature review. Humanities and Social Sciences Communications, 12(1), 717. https://doi.org/10.1057/s41599-025-05055-9

Maudy, M., Andriana, I., Mu’izzuddin, M., & Widiyanti, M. (2024). The Effect of Competition and Bank Size on Bank Stability in ASEAN-5 Countries. American Journal of Economic and Management Business (AJEMB), 3(7), 195–205. https://doi.org/10.58631/ajemb.v3i7.104

Maulana, A., Murdhaningsih, & Luthfi, N. F. (2025). Financial risk management, capital adequacy, and stability of Islamic banks: The moderating effect of efficiency in the Indonesian and Malaysian context. Banks and Bank Systems, 20(3), 249–262. https://doi.org/10.21511/bbs.20(3).2025.18

Meero, A. (2025). Islamic vs. Conventional Banking in the Age of FinTech and AI: Evolving Business Models, Efficiency, and Stability (2020–2024). International Journal of Financial Studies, 13(3), 148. https://doi.org/10.3390/ijfs13030148

Milojević, N., & Redzepagic, S. (2021). Prospects of Artificial Intelligence and Machine Learning Application in Banking Risk Management. Journal of Central Banking Theory and Practice, 10(3), 41–57. https://doi.org/10.2478/jcbtp-2021-0023

Mustafa, J. A. (2024). From innovation to stability: Evaluating the ripple influence of digital payment systems and capital adequacy ratio on a bank’s Z-score. Banks and Bank Systems, 19(3), 67–79. https://doi.org/10.21511/bbs.19(3).2024.07

Nguyen, T. Le, Do, T. T., & Nguyen, L. T. A. (2024). Determinants of Bank Stability in Emerging Economies: Empirical Evidence From Vietnam. International Journal of Social Science and Economic Research, 09(08), 2767–2781. https://doi.org/10.46609/IJSSER.2024.v09i08.014

Petrović, D., Dasilas, A., & Karanović, G. (2025). Bank risk-adjusted efficiency using a composite risk management index. Journal of Risk Finance, 26(3), 485–515. https://doi.org/10.1108/JRF-11-2024-0362

Pratiwi, R., Daulay, W. A. A., & Chairina, C. (2022). Studi Literatur Peran Bank Indonesia Terhadap Stabilitas Keuangan. Jurnal Ekonomika Dan Bisnis (JEBS), 2(3), 748–753. https://doi.org/10.47233/jebs.v2i3.261

Ross, S. A. (1977). The Determination of Financial Structure: The Incentive-Signalling Approach. The Bell Journal of Economics, 8(1), 23–40. https://doi.org/10.2307/3003485

Saddam, S. Z., Jaafar, M. N., Muhamat, A. A., Nizam, N. S. M., & Halim, N. A. (2024). Determinants of Islamic Banks’ Stability in Malaysia and Indonesia. The Indonesian Capital Market Review, 16(1), 17–29. https://doi.org/10.21002/icmr.v16i1.1193

Saeed, M., Izzeldin, M., Hassan, M. K., & Pappas, V. (2020). The inter-temporal relationship between risk, capital and efficiency: The case of Islamic and conventional banks. Pacific-Basin Finance Journal, 62, 101328. https://doi.org/10.1016/j.pacfin.2020.101328

Salazar, Y., Merello, P., & Zorio-Grima, A. (2023). IFRS 9, banking risk and COVID-19: Evidence from Europe. Finance Research Letters, 56, 104130. https://doi.org/10.1016/j.frl.2023.104130

Samarasinghe, A. (2023). Stock market liquidity and bank stability. Pacific-Basin Finance Journal, 79, 102028. https://doi.org/10.1016/j.pacfin.2023.102028

Setyaningrum, N. A., Setiawan, M. N. K., Maghfiroh, S., & Ansori, S. (2022). Assessing Agency Theory and Solutions on the Financing of Revenue Sharing Systems in Islamic Banking. Ijtimā Iyya Journal of Muslim Society Research, 7(1), 16–27. https://doi.org/10.24090/ijtimaiyya.v7i1.6387

Sidhu, A. V., Rastogi, S., Gupte, R., & Bhimavarapu, V. M. (2022). Impact of Liquidity Coverage Ratio on Performance of Select Indian Banks. Journal of Risk and Financial Management, 15(5), 226. https://doi.org/10.3390/jrfm15050226

Silva, F. B. G. (2021). Fiscal Deficits, Bank Credit Risk, and Loan-Loss Provisions. Journal of Financial and Quantitative Analysis, 56(5), 1537–1589. https://doi.org/10.1017/S0022109020000472

Sitorus, A. P., Mahlel, Majid, M. S. A., Marliyah, & Handayani, R. (2022). Krisis Keuangan Masa Depan dan Sistem Keuangan Baru. Jurnal EMT KITA, 6(1), 136–146. https://doi.org/10.35870/emt.v6i1.561

Snjawi, S. A. K., & Essa, S. K. (2021). The Role of Liquidity Indicators to Assess its Risks and Enhance Capital Adequacy in Banking Activity. Journal of Economics and Administrative Sciences, 27(130), 243–255. https://doi.org/10.33095/jeas.v27i130.2218

Spence, M. (1973). Job Market Signaling. The Quarterly Journal of Economics, 87(3), 355. https://doi.org/10.2307/1882010

Sutandijo, S., & Sugiyarti, L. (2022). Ukuran Bank, Manajemen Laba, Dan Stabilitas Keuangan Bank. SCIENTIFIC JOURNAL OF REFLECTION : Economic, Accounting, Management and Business, 5(2), 310–320. https://doi.org/10.37481/sjr.v5i2.466

Sutandijo, S., & Sugiyarti, L. (2023). RELEVANSI STABILITAS KEUANGAN BANK TERHADAP RISIKO INVESTASI DAN KEBIJAKAN DIVIDEN SEBAGAI VARIABEL MEDIASI. SCIENTIFIC JOURNAL OF REFLECTION : Economic, Accounting, Management and Business, 6(3), 672–679. https://doi.org/10.37481/sjr.v6i3.708

Trung, N. T. (2025). The impact of GDP growth on banking stability in Vietnam: A PVAR model analysis. Journal of Accounting, Business and Finance Research, 20(2), 31–41. https://doi.org/10.55217/102.v20i2.996

Wen, W., & Liang, Y. (2025). Digital transformation and liquidity creation in commercial banks: Evidence from the Chinese banking industry. PLOS ONE, 20(2), e0318785. https://doi.org/10.1371/journal.pone.0318785

Downloads

Published

2026-08-10

Issue

Vol. 5 No. 2 (2026): Special Issue

Section

Articles

License

Copyright (c) 2026 Rifki Azis Syahrizal, Entot Suhartono, Zaky Machmuddah, Arditya Dian Andika

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Authors who publish with this journal agree to the following terms:

  1. Copyright on any article is retained by the author(s).
  2. The author grants the journal, right of first publication with the work simultaneously licensed under a Creative Commons Attribution License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.
  3. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal’s published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial publication in this journal.
  4. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
  5. The article and any associated published material is distributed under the Creative Commons Attribution-ShareAlike 4.0 International License

Deprecated: json_decode(): Passing null to parameter #1 ($json) of type string is deprecated in /var/www/html/plugins/generic/citations/CitationsPlugin.php on line 68

How to Cite

DOES DIGITALIZATION MODERATE THE EFFECT OF INTERNAL FACTORS ON CONVENTIONAL BANK STABILITY? EVIDENCE FROM INDONESIA. (2026). JAT : Journal Of Accounting and Tax , 5(2), 337-361. https://doi.org/10.36563/f399gd12