Does Size Matter? How Bank Size Moderates Liquidity Risk and Credit Risk on Bank Profitability

Lula Muztahidah; Maretha Ika Prajawati

doi:10.61255/jeemba.v4i5.1297

Authors

Lula Muztahidah Universitas Islam Negeri Maulana Malik Ibrahim Malang, Indonesia
Maretha Ika Prajawati Universitas Islam Negeri Maulana Malik Ibrahim Malang, Indonesia

DOI:

https://doi.org/10.61255/jeemba.v4i5.1297

Keywords:

Bank Profitability, Liquidity Risk, Credit risk, Bank Size, Coronavirus Disease 2019 (COVID-19)

Abstract

Objective – The objective of this study is to analyze the effect of liquidity risk and credit risk on bank profitability, with bank size as a moderator variable, among conventional banks listed on the Indonesia Stock Exchange during the 2020–2024 period, encompassing both the COVID-19 pandemic and the subsequent recovery phase.

Design/Methodology/Approach – This quantitative study uses panel data from 42 conventional banks listed on the Indonesia Stock Exchange as the research sample. The sampling technique employed was purposive sampling, along with Moderated Regression Analysis, with the Fixed Effects Model (FEM) selected as the best model.

Findings/Results – Bank profitability is not significantly affected by liquidity risk (LDR), and credit risk (NPL) also has no significant effect on bank profitability during the 2020-2024 period, spanning the COVID-19 pandemic and post-pandemic recovery phase. Bank size has a positive and significant effect on bank profitability. However, it was not found to significantly moderate the relationship between either liquidity risk or credit risk and bank profitability.

Originality/Value – This study presents empirical evidence on the direct impact of bank size on profitability and tests its moderating role in the relationships between liquidity risk and credit risk and profitability, while also confirming the limited role of bank size as a risk mitigation factor during the pandemic and post-pandemic recovery period, namely 2020-2024, in the Indonesian banking sector.

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