Digital Transformation and Green Credit: Strategic Implications for Bank Profitability
Abstract
This study seeks to examine the impact of non-performing loans, the loan-to-deposit ratio, green credit, and digitalisation on the profitability of Indonesia's banking system, while considering bank size and bank age as control factors. This research is distinctive due to its incorporation of green credit and digitalisation in response to the increasing significance of sustainability and technical advancement in the financial sector. This study utilises secondary data obtained from the annual reports of banking firms listed on the Indonesia Stock Exchange (IDX) for the years 2019 to 2024. The sample was chosen by a purposive sampling technique. The investigation utilised imbalanced panel data regression with a fixed effects model, leveraging EViews 9 software. The findings demonstrate that non-performing loans adversely and significantly impact profitability, while the loan-to-deposit ratio positively and significantly influences profitability. Additionally, green credit exerts a positive and significant effect on profitability, and both bank size and bank age as control variables significantly affect profitability. In contrast, digitalisation exerts no substantial influence on profitability. The findings underscore the necessity for banks to adeptly manage credit risk and optimise digital transformation to improve financial performance, alongside the vital role of government in fostering and developing green credit programs.
Downloads
References
Abdou, D. M. S., & Alarabi, Y. (2024). The dynamics behind private banking growth in Egypt. Future Business Journal, 10(1).https://doi.org/10.1186/s43093-023-00290-5
Abdulrauf, L.A.-O., Rabiu, S.A., Akande, J.O., & Gbadebo, A.D. (2024). How Does Financial Risk Management Impact Financial Performance of Microfinance Banks?. Acta Universitatis Danubius. Œconomica, 20(5), 118–135. Retrieved fromhttps://dj.univ-danubius.ro/index.php/AUDOE/article/view/3012
Al Zaidanin, JS, & Al Zaidanin, OJ (2021). The impact of credit risk management on the financial performance of United Arab Emirates commercial banks. International Journal of Research in Business and Social Science (2147- 4478), 10(3), 303–319.https://doi.org/10.20525/ijrbs.v10i3.1102
Alfawareh, F.S., Al-Kofahi, M., Erman Che Johari, E., & Chai-Aun, O. (2024). Digital payments, ownership structure, and bank performance: insights from Jordan. International Journal of Bank Marketing, 43(2), 262–291.https://doi.org/10.1108/IJBM-01-2024-0062
Alifia, W., Leon, FM, Purba, YE, Chandra, K., & Nalurita, F. (2024). Determinant Factors for M-Banking Use in Generation Z. In International Conference on Entrepreneurship, Leadership and Business Innovation (ICELBI 2022) (Vol. 269, pp. 250-258). Atlantis Press
Al-Shouha, L., Khasawneh, O., El-Qawaqneh, S., Al-Naimi, A. A., Saram, M., & Ismail, WNSW (2024). The impact of financial technology on bank performance in Arabian countries. Banks and Bank Systems, 19(2), 234–244.https://doi.org/10.21511/bbs.19(2).2024.19
Amare, A. (2021). Capital structure and profitability: Panel data evidence of private banks in Ethiopia. Cogent Economics and Finance, 9(1), 1–24.https://doi.org/10.1080/23322039.2021.1953736
Anh, N.T., & Huong, D.T. (2024). Bank-Specific Factors Influencing the Profitability of Listed Commercial Banks in Vietnam. Revista Finanzas y Politica Economica, 16(2), 469–488.https://doi.org/10.14718/revfinanzpolitecon.v16.n2.2024.6
Animasaun, RO, Omotunwase, OM, Babayanju, AGA, & Bamgboye, AA (2025). Effect of Credit Risk Management on Financial Performance of Listed Deposit Money Banks in Nigeria. International Journal of Research in Social Science and Humanities, 06(01), 0–11.https://doi.org/10.47505/IJRSS.2025.1.1
Berhe, A.G. (2024). Determinants of bank profitability in Ethiopia: does political stability matter? Cogent Business and Management, 11(1).https://doi.org/10.1080/23311975.2024.2410406
Chand, S.A., Kumar, R.R., Stauvermann, P.J., & Shahbaz, M. (2024a). Determinants of Bank Profitability—Do Institutions, Globalization, and Global Uncertainty Matter for Banks in Island Economies? The Case of Fiji. Journal of Risk and Financial Management, 17(6).https://doi.org/10.3390/jrfm17060218
Chauhan, Y., & Sharma, P. (2024). A Systematic Literature Review Of Digital Payments. Metamorphosis: A Journal Of Management Research. 23(2). 173-187Https://Doi.Org/10.1177/09726225241257730
Corbet, S., Hou, Y. (Greg), Hu, Y., Oxley, L., & Tang, M. (2024). Do financial innovations influence bank performance? Evidence from China. Studies in Economics and Finance, 41(2), 241–267.https://doi.org/10.1108/SEF-02-2022-0119
Danye, H. (2020). Research on the impact of green credit on profitability of commercial banks in China. E3S Web of Conferences, 214, 214.https://doi.org/10.1051/e3sconf/202021403008
Diamond, D. W., & Rajan, R. G. (2000). A theory of Bank Capital. Wiley, 55(6), 2431–
Doran, N.M., Bădîrcea, R.M., & Manta, A.G. (2022). Digitization and Financial Performance of Banking Sectors Facing COVID-19 Challenges in Central and Eastern European Countries. Electronics (Switzerland), 11(21).https://doi.org/10.3390/electronics11213483
Fadun, O.S., & Silwimba, P. (2023). Does credit risk management impact the financial performance of commercial banks? International Journal of Business Ecosystem & Strategy (2687-2293), 5(2), 55–66.https://doi.org/10.36096/ijbes.v5i2.415
Ghosh, K., & Mondal, A. (2022). Credit Risk Management and Financial Performance of Indian Commercial Banks: A Study. International Journal of Financial Management, 12(2), 26–37.http://publishingindia.com/ijfm/
González, HBM, Figueroa, E.G., & de la Torre-Torres, O.V. (2023). The Effect of Banking Channels and Efficiency Indicators on Bank Profitability. Mercados y Negocios, 2023(48), 3–26.https://doi.org/10.32870/myn.vi48.7685
Gupta, N., & Mahakud, J. (2020). Ownership, bank size, capitalization and bank performance: Evidence from India. Cogent Economics and Finance, 8(1), 1–39.https://doi.org/10.1080/23322039.2020.1808282
Hasan, SM, Islam, KMA, Tawfiq, TT, & Saha, P. (2025). Triple pillars of sustainable finance: The role of green finance, CSR, and digitalization in bank performance in Bangladesh. Banks and Bank Systems, 20(1), 38–50.https://doi.org/10.21511/bbs.20(1).2025.04
Hermuningsih, S., Sari, PP, & Rahmawati, AD (2022). The moderating role of bank size: influence of fintech and liquidity on financial performance. Jurnal Siasat Bisnis, 106–117.https://doi.org/10.20885/jsb.vol27.iss1.art8
Imamah, N., & Ayu Safira, D. (2021). The Effect of Mobile Banking on Bank Profitability on the Indonesia Stock Exchange. Journal of Business Administration, 15(1), 95–103.https://profit.ub.ac.id
Judijanto, L. (2024). The Evolution of Research on Sustainable Finance in Promoting a Green Economy. Western Science Journal of Accounting and Finance, 4(1), 40-49.https://doi.org/10.58812/jakws.v4i01.1950
Jungo, J., & Canguende-Valentim, C.F. (2025). The Impact of the Legal Environment on Bank Profitability: An Empirical Analysis of the Angolan Banking Sector. Journal of Risk and Financial Management, 18(3).https://doi.org/10.3390/jrfm18030139
Kumar, V., Thrikawala, S., & Acharya, S. (2022). Financial inclusion and bank profitability: Evidence from a developed market. Global Finance Journal, 53.https://doi.org/10.1016/j.gfj.2021.100609
Lalon, RM, Faruk, MO, & Amir, K. Bin. (2025). Investigating the impact of green banking initiatives on bank performance: empirical evidence from emerging economies. Discover Sustainability, 6(1).https://doi.org/10.1007/s43621-025-01279-6
Li, Z., & Chen, P. (2024). Sustainable Finance Meets FinTech: Amplifying Green Credit's Benefits for Banks. Sustainability, 16(18), 7901.https://doi.org/10.3390/su16187901
Maulana, TR, Usman, B., & Nalurita, F. (2025). The Effect of Audit Committee Characteristics and Board Size Moderated by Ownership Concentration on Profitability of Commercial Banks in Indonesia. Journal of Economic Resources, 8(1), 11-30.https://doi.org/10.57178/jer.v8i1.1151
Medyawati, H., Yunanto, M., & Hegarini, E. (2021). Financial Technology as Determinants of Bank Profitability. Journal of Economics, Finance and Accounting Studies, 3(2), 91–100.https://doi.org/10.32996/jefas.2021.3.2.10
Mehzabin, S., Shahriar, A., Hoque, M.N., Wanke, P., & Azad, Md. AK (2023). The effect of capital structure, operating efficiency and non-interest income on bank profitability: new evidence from Asia. Asian Journal of Economics and Banking, 7(1), 25–44.https://doi.org/10.1108/ajeb-03-2022-0036
Mengstie, B., Moisa, T., & Moisa, T. (2024a). Impact of working capital management on profitability of private commercial banks in Ethiopia. Journal of Innovation and Entrepreneurship, 13(1).https://doi.org/10.1186/s13731-024-00379-3
Mirovic, V., Kalas, B., Djokic, I., Milicevic, N., Djokic, N., & Djakovic, M. (2023). Green Loans in Bank Portfolio: Financial and Marketing Implications. Sustainability (Switzerland), 15(7).https://doi.org/10.3390/su15075914
Mulbah, K. T., Kurbonov, S., & Nasriddinov, B. (2024). The Effect of Bank Size, Net Interest Margin, and Capital Adequacy Ratio on Commercial Banks' Return on Assets: Empirical Evidence from Tanzania. European Scientific Journal ESJ, 28.https://doi.org/10.19044/esipreprint.4.2024.p474
Nalurita, F., Leon, FM, & Nisfiannoor, M. (2022). Financial Management Behavior For E-Wallet Users In Jabodetabek. Business and Entrepreneurial Review, 22(2), 229-250.https://doi.org/10.25105/ber.v22i2.13951
Nguyen, QTT, Ho, LTH, & Nguyen, D.T. (2023). Digitalization and bank profitability: evidence from an emerging country. International Journal of Bank Marketing, 41(7), 1847–1871.https://doi.org/10.1108/IJBM-03-2023-0156
Nurjanah, N., & Amrizal, A. (2024). Analysis of the influence of financial technology, internal performance, and macroeconomic factors on the profitability of Islamic banks in Indonesia. Jurnal Ilmiah Ekonomi Islam, 10(3), 2470–2479.https://doi.org/10.29040/jiei.v10i3.14178
Olofin, A.J., Muritala, T.A., Maitala, F., Abubakar, H.L., & Ajalie, S.N. (2024). The Impact Of Liquidity Risk On Profitability Of Listed Deposit Money Banks In Nigeria. International Journal of Professional Business Review, 9(6), e4777.https://doi.org/10.26668/businessreview/2024.v9i6.4777
Quy, V.T., & Tuan, P.D. (2024). Determinants of a bank's profitability with the mediating role of interest rate spread: A case of Vietnam. Asian Economic and Financial Review, 14(5), 339–355.https://doi.org/10.55493/5002.v14i5.5041
Plekhanov, D., Franke, H., & Netland, T. H. (2023). Digital transformation: A review and research agenda. European Management Journal, 41(6), 821–844.https://doi.org/10.1016/j.emj.2022.09.007
Putri, AA, & Nalurita, F. (2024). The Effect of Credit Risk Management, Bank-Specific Factors, and Corporate Social Responsibility on the Financial Performance of Banks in Indonesia. Business and Entrepreneurial Review, 24(2), 205-224. http://dx.doi.org/10.25105/ber.v24i2.21445
Razermera, T., Brijlal, P., & Jwara, N. (2024). The Impact of Risk Management on Banks' Profitability: A South African Perspective. International Journal of Economics and Financial Issues, 14(4), 56–65.https://doi.org/10.32479/IJEFI.16195
Saleh, B. A., & Paz, V. (2023). Credit risk management and profitability: Evidence from Palestinian banks. Banks and Bank Systems, 18(3), 25–34.https://doi.org/10.21511/bbs.18(3).2023.03
Saleh, I., & Afifa, MA (2020). The effect of credit risk, liquidity risk and bank capital on bank profitability: Evidence from an emerging market. Cogent Economics and Finance, 8(1). 1-13.https://doi.org/10.1080/23322039.2020.1814509
Sanyaolu, WA, Siynbola, TT, Ogunmefun, GT, & Makinde, AB (2019). Determinants Of Profitability Of Nigerian Deposit Money Banks. Economic Review: Journal of Economics and Business, 17(1), 47–62. Retrieved fromhttps://er.ef.untz.ba/index.php/er/article/view/81
Sari, L., Hady, H. & Nalurita, F. (2022). The Influence of External and Internal Factors on the Capital Structure Dynamics of Retail Trade Companies Registered in Indonesia. International Journal of Demos (IJD), 4(4), 1212-1223.https://doi.org/10.37950/ijd.v4i4.339
Senan, NAM, Noaman, AAA, Al-Dalaien, BOA, & Al-Homaidi, EA (2021). Corporate social responsibility disclosure and profitability: Evidence from Islamic banks working in Yemen. In Banks and Bank Systems, 16(2), 91–102. LLC CPC Business Perspectives.https://doi.org/10.21511/bbs.16(2).2021.09
Shihadeh, F.H., Hannon, A.M.T., Guan, J., Ul Haq, I., & Wang, X. (2018). Does financial inclusion improve the banks' performance? Evidence from Jordan. Research in Finance, 34, 117–138.https://doi.org/10.1108/S0196-382120170000034005
Simamora, N. (2024, January 29). Bank Credit Distribution to the Green Sector Has Great Potential. Kontan.https://keuangan.kontan.co.id/news/penyaluran-kredit-perbankan-ke-sektor-hijau-milik-potensi-yang-besar
Song, Deng, & Wu. (2019). Comparing the influence of green credit on commercial bank profitability in China and abroad: Empirical test based on a dynamic panel system using GMM. International Journal of Financial Studies, 7(4).https://doi.org/10.3390/ijfs7040064
Sutrisno, S., Widarjono, A., & Hakim, A. (2024). The Role of Green Credit in Bank Profitability and Stability: A Case Study on Green Banking in Indonesia. Risks, 12(12), 198.https://doi.org/10.3390/risks12120198
Sun, T., Mirza, N., Umar, M., & Ktaish, F. (2024). When interest rates rise, ESG is still relevant – The case of banking firms. Finance Research Letters, 69(Part B), 106128.https://doi.org/10.1016/j.frl.2024.106128
Tambunan, M., & Aziza, N. (2024). The Influence of Financial Technology on Banking Financial Performance. Owner, 8(2), 1491–1498.https://doi.org/10.33395/owner.v8i2.2049
Tanha, M., Karimul Alam, M., Mahmud, S., Hossain, S., Alam, M., & Al Sabahel, M. (2024). The correlation of cashless banking and profitability in the banking industry in Bangladesh. Annals of Management and Organization Research, 5(3), 175–188.https://doi.org/10.35912/amor.v5i3.1864
Wanting, X. (2020). Research on the Impact of Green Credit on the Financial Performance of Commercial Banks. Clausius Scientific Press, 3(1), 127–136.https://doi.org/10.23977/ferm.2020.030119
Winiadi, N., Usman, B., & Nalurita, F. (2024). The Influence of Risk, Leverage, Board Gender Diversity, Moderated by Firm Size on Profitability of the Banking Sector. Journal of Accounting and Business: Journal of Accounting Study Program, 10(2), 56-74.https://doi.org/10.31289/jab.v10i2.12431
Wu, X., & Cheng, G. (2024). The Performance And Stability Of Financial Institutions After Digital Transformation: The Importance Of Regional Policies. Finance Research Letters, 66.Https://Doi.Org/10.1016/J.Frl.2024.105671
Xi, B., Wang, Y., & Yang, M. (2022). Green credit, green reputation, and corporate financial performance: evidence from China. Environmental Science and Pollution Research, 29(2), 2401–2419.https://doi.org/10.1007/s11356-021-15646-z
Yilmaz, C., & Yildirim, H. (2024). Investigating the Effect of Digitalization in Financial Inclusion on the Financial Performance of Deposit Banks in Türkiye. Socioeconomics, 32(61), 47–69.https://doi.org/10.17233/sosyoekonomi.2024.03.04
Yin, X. (2021). Research on the Impact of Green Credit on the Financial Performance of Commercial Banks. Finance and Markets, 6(1), 71–75.https://doi.org/10.18686/fm.v6i1.3267
Zhang, Y. (2018). Green Credit Rises the Financial Performance of Commercial Banks-A Case Study on Industrial Banks. Atlantis Press, 236(1), 295–300. .https://doi.org/10.2991/meess-18.2018.56
Copyright (c) 2026 Grecia Alvionita Simanjorang, Febria Nalurita, Farah Margaretha Leon
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:
- Authors retain copyright and grant 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.
- 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.
- 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.
