Financial Risk Management Practices and Their Impact on Banking Stability

Dwi Irawati

doi:10.55927/fjst.v5i1.397

Authors

Dwi Irawati Universitas Muhammadiyah Purworejo

DOI:

https://doi.org/10.55927/fjst.v5i1.397

Keywords:

Financial Risk Management, Banking Stability, Credit Risk, Liquidity Risk, Panel Data Regression.

Abstract

Banking stability is crucial for maintaining financial system resilience amid rising financial risks and post-pandemic economic uncertainty. This study examines the effect of financial risk management practices on the stability of conventional commercial banks listed on the Indonesia Stock Exchange. Using a quantitative explanatory approach, the study analyzes secondary data from annual financial statements and Financial Services Authority statistics for 30 banks over the 2019–2024 period (180 panel observations). Panel data regression was applied, with model selection conducted through the Chow, Hausman, and Lagrange Multiplier tests. The results indicate that credit risk, proxied by Non-Performing Loans, has a negative and significant effect on banking stability, while liquidity and market risks show varying effects depending on bank characteristics. These findings highlight the critical role of effective risk management in sustaining banking stability and provide insights for regulators and bank management in developing sustainable risk management policies.

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