Banking and Financial Institution Management in the Modern Financial System

Abstract

The resilience of the financial system is determined not only by capital adequacy and technological advancements but also by the quality of management, the implementation of governance, and the effectiveness of risk management.

This article aims to analyze the role of banking and financial institution management in maintaining the stability of Indonesia's financial system in 2026. The method used is a literature review with a descriptive qualitative approach based on academic literature, regulations, and secondary data reported by financial media.

The discussion focuses on banking credit quality, the development of digital payments, online lending risks, and the implementation of governance.

Data as of August 2026 shows that bank credit grew by 13.65% year-on-year, while the non-performing loan non-performing loan (NPL) gross ratio increased to 2.11%. In the online lending industry, the 90-day default rate, or TWP90, reached 4.73%.

These conditions indicate that financing growth must be balanced with debtor eligibility assessments, strengthened digital security, and effective supervision.

This article concludes that management quality, leadership integrity, and a risk-aware culture are critical factors in maintaining public trust and the resilience of the financial system.

Keywords: Banking Management, Risk Management, Governance, Digital Payments, Online Lending, Financial Stability.

1. Introduction

The financial system can face pressure due to various factors emerging simultaneously, such as changing global economic conditions, exchange rate fluctuations, rising interest rates, and credit growth that is not balanced with adequate risk management. The history of financial crises shows that excessive credit expansion during periods of economic growth can increase the vulnerability of financial institutions when economic conditions deteriorate (Mishkin, 2019).

Banking resilience is generally assessed through financial indicators such as capital adequacy, liquidity, and non-performing loan ratios. These indicators are important to illustrate a bank's ability to face risks. However, good financial conditions in one period do not always guarantee resilience in the next.

Decision-making structures, management incentives, and internal oversight mechanisms also influence the level of risk taken by banks (Laeven & Levine, 2009). Therefore, the implementation of good governance is an essential part of maintaining the stability of financial institutions (Basel Committee on Banking Supervision, 2015).

These challenges are also visible in the development of Indonesia's financial sector in 2026. Based on reports referring to data from the Financial Services Authority (OJK), bank credit grew by 13.65% year-on-year through August 2026, while the gross NPL ratio increased to 2.11% (Bisnis.com, 2026b).

In the online lending industry, the 90-day default rate (TWP90) also increased to 4.73% during the same period (Bisnis.com, 2026c). These developments indicate that financing growth must be accompanied by consistent risk control.

Furthermore, the digitalization of financial services has expanded public access to payments and financing. While providing benefits such as transaction efficiency and service convenience, these developments also pose challenges in data security, consumer protection, and credit risk management.

Based on these conditions, this article discusses the role of banking and financial institution management quality in maintaining the resilience of Indonesia's financial system. The discussion focuses on banking credit quality, digital service risks, the development of online lending, and the implementation of governance as part of efforts to maintain financial stability.

2. Research Method

This article uses a literature review method with a descriptive qualitative approach. The data used is secondary data sourced from academic literature, regulations, publications from relevant institutions, and financial media reports regarding developments in banking and the online lending industry in Indonesia.

The analysis is conducted by connecting the concepts of risk management and financial institution governance with industry indicator developments in 2026.

The indicators discussed include credit growth, NPL ratios, capital adequacy, liquidity, digital payment transactions, financing buy now, pay later (BNPL), and the online lending default rate or TWP90.

This approach is used to identify the relationship between financial sector growth, the quality of risk management, and the resilience of financial institutions.

Because it uses secondary data and does not perform direct statistical testing, the results of the analysis are descriptive and are not intended to prove causal relationships empirically.

3. Results and Discussion

3.1 Banking Conditions and the Importance of Credit Risk Management

Banking conditions in Indonesia in 2026 still show a number of indicators that support industry resilience.

Bank credit was recorded to have grown by 13.65% year-on-year to Rp9,178 trillion in August 2026. This growth is above the OJK's credit growth target of 10–12% for that year (Bisnis.com, 2026b; Kontan, 2026a).

In terms of capital and liquidity, the capital adequacy ratio capital adequacy ratio (CAR) was recorded at 24.1%, while the liquidity coverage ratio liquidity coverage ratio (LCR) reached 187.07% (KabarBursa.com, 2026).

Nevertheless, high credit growth needs to be balanced with asset quality monitoring. The gross NPL ratio increased to 2.11% in August 2026 from 2.05% in December 2025.

Meanwhile, net NPL rose from 0.79% to 0.84% (Bisnis.com, 2026b). These changes do not by themselves indicate a banking crisis, but they are indicators that need attention in credit risk management.

Capital adequacy serves as a buffer when a bank experiences losses. However, large capital does not eliminate risk if credit disbursement is carried out without an adequate assessment of repayment capacity.

Credit expansion that is too oriented toward achieving targets can increase the potential for arrears, the need for provisioning, and a decline in future profitability.

Therefore, bank management needs to assess credit performance not only based on disbursement growth but also through the quality of debtor analysis, credit concentration, adequacy of provisioning, and payment monitoring.

Stress testing stress testing is also needed to assess a bank's ability to face scenarios of declining purchasing power, rising unemployment, exchange rate changes, and worsening economic conditions.

3.2 Monetary Policy and Banking Management Challenges

Monetary conditions also influence banking management decisions. Based on reports regarding the Bank Indonesia Board of Governors' meeting decision on September 22–23, 2026, the BI-Rate was maintained at 5.75% to support the stability of the rupiah exchange rate amidst external pressures (Bisnis.com, 2026a).

In these conditions, bank management needs to account for the influence of exchange rate and interest rate changes on funding costs, debtor repayment capacity, and asset quality.

Increased credit disbursement must be accompanied by an analysis of the economic sectors being financed and the sensitivity of debtors to changes in macroeconomic conditions.

Monetary and macroprudential policies that support credit growth can provide room for real sector financing.

However, this room must still be utilized with the principle of prudence. Banks need to maintain a balance between achieving business targets and the ability to control risk so that financing growth does not degrade asset quality.

Thus, banking management is not enough to focus only on achieving credit growth targets. Management decisions also need to consider changing economic conditions and their impact on long-term business sustainability.

3.3 Digitalization of Financial Services and Operational Risk

Digitalization is one of the important factors in the development of the modern financial system. Digital payments facilitate transactions, increase efficiency, and expand public access to financial services.

In July 2026, digital payment transactions were recorded at 5.50 billion transactions, growing 28.69% compared to the same period the previous year.

The highest growth occurred in QRIS, at 82.42%. Bank Indonesia also expanded the merchant discount rate merchant discount rate (MDR) policy for QRIS at 0% for transactions up to Rp100,000 starting October 1, 2026 (InfoBankNews, 2026).

In the banking sector, BNPL financing reached Rp31.41 trillion or about 0.34% of total financing. Although the portion is relatively small, the growth of this financing still needs to be monitored to anticipate increased credit risk.

The development of digital services provides benefits for the public and financial institutions, but it also creates operational risks.

Reliance on technology increases the need for data protection, cybersecurity, and readiness to face system disruptions.

The ease of access to digital financing can also encourage excessive use of consumer credit if not accompanied by an adequate assessment of repayment capacity.

Furthermore, digital transactions can accelerate the movement of funds when customers lose confidence in a financial institution.

Diamond and Dybvig (1983) explained that trust issues and liquidity needs can trigger simultaneous fund withdrawals. Although that research discusses bank fund withdrawal mechanisms, the concept shows the importance of maintaining customer trust in the financial system.

To manage these risks, financial institutions need to implement layered security through adequate authentication, monitoring of unusual transactions, data protection, and business continuity plans.

Evaluating the success of digitalization also needs to include transaction success rates, frequency of disruptions, losses due to fraud, and the speed of handling customer complaints.

Thus, the success of digital transformation is not only measured by the increase in the number of users and transaction volume but also by the security and reliability of services.

3.4 Online Lending Risks and Consumer Protection

Technological developments in finance have also increased the role of online lending as an alternative source of financing, including for the public and small business owners.

However, the growth of this industry needs to be balanced with repayment capacity assessments, cost transparency, and effective supervision.

As of August 2026, the outstanding outstanding financing of the online lending industry reached Rp106.94 trillion, growing 22.07% year-on-year (Kontan, 2026c).

At the same time, TWP90 increased to 4.73%, compared to 2.60% in the same period the previous year (Bisnis.com, 2026c; Kontan, 2026b).

This figure is still below the 5% limit, but its increase needs to be a concern. Kontan (2026b) also reported that there were 16 providers with a TWP90 above 5%.

These developments show that financing growth must be read alongside payment quality indicators.

The increase in outstanding does not always reflect an improvement in business quality if the risk of default also increases.

Online lending providers need to ensure that credit assessments are carried out based on the borrower's repayment capacity, not just based on ease of access or the opportunity to increase the amount of loans disbursed.

Risk control measures can be carried out through proportional identity and income verification, the use of adequate credit scoring, periodic portfolio monitoring, and the prevention of repeated loan disbursements to borrowers who already have an excessive debt burden.

Providers also need to implement collection processes in accordance with regulations and provide cost information transparently.

In terms of supervision, regulators need to ensure that providers with high default rates carry out improvement measures effectively.

Supervision also needs to pay attention to consumer protection and the existence of illegal providers.

This approach is in line with the need for the development of a healthy financial sector as regulated in Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector.

Thus, supervision of online lending needs to focus on financing sustainability, credit assessment quality, and consumer protection.

The goal is not to hinder innovation, but to ensure that the expansion of financial access does not create excessive risks for borrowers or the industry as a whole.

3.5 Governance and Organizational Culture as Determinants of Resilience

The implementation of regulations and internal control systems is an important part of maintaining the stability of financial institutions.

However, its effectiveness is highly dependent on the commitment of leadership and organizational culture.

The Basel Committee on Banking Supervision (2015) emphasizes the importance of board oversight, management responsibility, internal control functions, and risk culture in bank governance.

These principles show that compliance with regulations is not enough to be understood as the fulfillment of administrative documents.

The board of commissioners and directors need to ensure that business decisions have considered risks, the compliance function has adequate authority, and internal audit can work independently.

Laeven and Levine (2009) show that governance and regulatory structures are related to bank risk-taking behavior.

Therefore, internal policies need to be designed so as not to encourage management to pursue short-term profits while ignoring asset quality and business sustainability.

A healthy organizational culture also requires openness in risk reporting.

Employees must have space to report irregularities without undue pressure, while audit findings need to be followed up consistently.

Incentive systems should consider asset quality, compliance, consumer protection, and long-term achievement, not just credit or revenue growth.

In this context, management quality becomes the link between formal rules and operational practices.

Strong capital, adequate technology, and clear regulations will provide better results if supported by leadership integrity, effective oversight, and risk awareness throughout the organization.

3.6 Implications for Financial System Resilience

Based on the discussion, financial system resilience needs to be assessed through a balance between financial conditions and management quality.

CAR and LCR ratios can show a bank's ability to absorb losses and face liquidity needs, while NPL and financing quality indicators help illustrate asset risk.

However, these indicators need to be complemented by assessments of decision-making processes, internal controls, technology security, and consumer protection.

In the banking sector, strengthening credit assessment and stress testing is needed to anticipate changing economic conditions.

In digital services, data security and operational readiness need to be a major part of the transformation strategy.

Meanwhile, the online lending industry requires more disciplined repayment capacity assessments as well as supervision of providers with deteriorating financing quality.

In all these sectors, governance is the basis for policy implementation.

Effective supervision, reporting transparency, and leadership integrity help ensure that business growth does not sacrifice long-term stability.

Therefore, measures of financial institution management success should include business growth, asset quality, liquidity, operational security, compliance, and consumer protection simultaneously.

This approach is more adequate than just being oriented toward credit increases or technological expansion because the ultimate goal is to maintain institutional sustainability and public trust.

4. Conclusion

The resilience of Indonesia's financial system in 2026 is supported by a number of relatively strong banking indicators, including credit growth, capital adequacy, and liquidity.

However, the increase in banking NPLs and online lending TWP90 shows that financing quality still needs attention.

The development of digital payments also demands the strengthening of cybersecurity, data protection, and operational readiness.

The results of the discussion show that the resilience of financial institutions depends not only on the amount of capital and the sophistication of technology but also on the quality of risk management, the implementation of governance, and leadership integrity.

Credit growth needs to be balanced with repayment capacity assessment and asset quality monitoring.

Digitalization must be accompanied by operational risk control, while online lending needs to be managed by paying attention to the borrower's repayment capacity and consumer protection.

Based on these findings, there are four steps that need to be strengthened.

First, banks need to maintain selectivity in credit disbursement and increase stress testing against changing economic conditions.

Second, financial institutions need to strengthen cybersecurity, data protection, and complaint handling.

Third, regulators need to increase supervision of digital financing risks and ensure consistent implementation of provisions.

Fourth, financial institution leaders need to build a work culture that upholds integrity, openness, and risk awareness.

Ultimately, public trust is an important element in the sustainability of the financial system.

This trust needs to be maintained through responsible management, effective governance, and the application of the principle of prudence.

Thus, management quality becomes one of the main factors in maintaining the stability of financial institutions and the resilience of Indonesia's financial system.

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