Does the Core Capital Requirement Affect Bank Performance?

Julianto and Fitty Valdi Arie
Additional contact information
Julianto: Department of Management, University of Sam Ratulangi, Indonesia
Fitty Valdi Arie: Institute of Applied Economics, University of Debrecen

SEA - Practical Application of Science, 2025, vol. XIII, issue 37, 15-24

Abstract: In 2020, the Financial Services Authority of Indonesia (OJK) introduced Regulation No. 12/POJK.03/2020, mandating that all commercial banks maintain a minimum core capital of three trillion rupiah by the end of 2022. This regulatory change aimed to strengthen the financial resilience and stability of the banking sector. However, the potential impact of this requirement on bank performance remains a critical area of investigation. This study seeks to provide empirical evidence on the relationship between core capital requirements and the financial performance of commercial banks in Indonesia. Using banking statistical data from 2013 to 2022, we examine the extent to which core capital influences bank profitability. The study employs Common Equity Tier 1 (CET1) and Capital Adequacy Ratio (CAR) as proxies for core capital, while Return on Assets (ROA) and Return on Equity (ROE) serve as indicators of bank performance. A descriptive-explanatory research design was adopted, and a simple regression analysis was conducted to assess the relationship between these variables. The findings reveal that the core capital requirement has a statistically significant negative effect on bank profitability, suggesting that higher capital requirements may impose constraints on the financial performance of commercial banks. Based on these results, we recommend that banking regulators in Indonesia strengthen their oversight mechanisms and explore strategies to mitigate potential adverse effects, ensuring that capital requirements contribute positively to the stability and long-term performance of the banking sector.

Keywords: Bank Core Capital; Bank Profitability; Commercial Banks; Indonesia (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://seaopenresearch.eu/Journals/articles/SPAS_37_2.pdf (application/pdf)
https://spas.seaopenresearch.eu/articles/spas_37_2.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cmj:seapas:y:2025:i:37:p:15-24

Access Statistics for this article

SEA - Practical Application of Science is currently edited by Romanian Foundation for Business Intelligence

More articles in SEA - Practical Application of Science from Romanian Foundation for Business Intelligence, Editorial Department
Bibliographic data for series maintained by Serghie Dan ().