DETERMINING FACTORS OF DIGITAL BANKING PROFITABILITY IN INDONESIA: CASE STUDY OF BANK JAGO TBK

The digital banking sector in Indonesia has experienced rapid growth, especially after the COVID-19 pandemic that accelerated the adoption of digital financial services. This study focuses on PT Bank Jago Tbk, a pioneer in digital banking, to examine the main determinants of profitability as measured by Return on Assets (ROA), with Loan to Deposit Ratio (LDR), Non-Performing Loan (NPL), and Capital Adequacy Ratio (CAR) as independent variables, with Net Interest Margin (NIM) as a mediating variable. Data analysis was conducted using Structural Equation Modeling - Partial Least Squares (SEM-PLS) based on financial data from 2018 to 2023. The results show a positive relationship between LDR and ROA, highlighting the importance of effective lending in increasing profitability. NPL shows a negative impact on ROA, emphasizing the importance of strong credit risk management to mitigate non-performing loans. Interestingly, CAR shows a complex indirect relationship with ROA, underscoring the need for efficient capital utilization to balance risk absorption and revenue generation. In addition, NIM significantly mediates the impact of these factors on ROA, underscoring its important role in optimizing bank profitability. This study provides actionable insights for PT Bank Jago Tbk to improve its financial performance by optimizing LDR, reducing NPL, and managing CAR efficiently. Recommendations include targeting the SME sector, implementing advanced credit scoring technology, and diversifying revenue streams beyond interest-based income. This study highlights the dynamic interactions of these variables, offering strategic direction for digital banks looking to thrive in a competitive market.