Analysis of the Effect of Capital Adequacy Ratio on Banking Financial Stability in Indonesia

Abstract

This study aims to analyze the effect of the Capital Adequacy Ratio on the financial stability of Indonesian banking, measured by Return on Assets. A quantitative approach was employed, utilizing secondary data from the Financial Services Authority (Otoritas Jasa Keuangan) Banking Statistics for the period from January 2022 to January 2023. The analysis utilized simple linear regression with SPSS version 25. The results indicate that the Capital Adequacy Ratio has a positive but insignificant effect on Return on Assets. The coefficient of determination (R²) of 0.074 indicates that only 7.4% of the variation in Return on Assets is explained by Capital Adequacy Ratio, while 92.6% is influenced by other factors, such as operational efficiency and risk management. These findings suggest that although capital adequacy plays a vital role in maintaining bank resilience, it is not the main determinant of profitability. Sustainable financial stability thus requires a balance between capitalization, asset efficiency, and prudent risk management