The Relationship of Banking Fundamental Factors to Financial System Stability: A Conceptual Study of LDR, NPL, and CAR

Abstract

This study conceptually examines the relationship between the Loan-to-Deposit Ratio, Non-Performing Loans, and Capital Adequacy Ratio in relation to banking system stability. Using a library research method, the study analyzes published literature from the last five years to identify relationship patterns and research gaps in previous findings. The synthesis reveals that the Loan to Deposit Ratio has a dual effect on stability: positive when efficiently managed, but negative when it causes liquidity pressure. Non-Performing Loan negatively affects stability due to increased credit risk, while the Capital Adequacy Ratio positively influences stability as a capital buffer. The interaction among these variables indicates that banking stability is achieved through a balance between liquidity, risk, and capital strength. This conceptual study provides a theoretical foundation for future empirical research and serves as a reference for regulators in formulating banking policies oriented toward sustainable financial stability