The Influence of Non-Performing Loans, Operational Efficiency, and Capital Adequacy Ratio on the Financial Performance of Banking Firms Listed on the Indonesia Stock Exchange (IDX) During the 2020–2024 Period

A bank is a financial institution that collects funds from the public in the form of deposits and redistributes these funds to the community in the form of loans or other financial instruments, with the ultimate goal of improving the overall welfare of society (Surinabila & Pratiwi, 2023).As an intermediary institution, banks play a strategic role in the economy.Through their core functions of mobilizing funds and allocating them to individuals and businesses in need, banks facilitate capital flows for investment, working capital, and consumption, thereby contributing to national economic growth (Rozie & Solihin, 2020).The banking industry is inherently exposed to various risks, particularly due to its role in managing public funds and reallocating them into various forms of investments, such as loans, securities, and other financial placements (Utami & Silaen, 2018).This inherent risk profile necessitates regular assessments of a bank's financial health by various stakeholders.Among these stakeholders, investors play a critical role, as the bank's financial performance directly affects the security of their invested capital.Financial ratios serve as essential tools for investors to evaluate a bank's performance.These ratios provide objective, comparable metrics that enable performance evaluation not only across different banks but also over different time periods (Diantini & Gunadi, 2020).Bank performance can be evaluated using several indicators such as average lending rates, average deposit rates, and overall profitability.However, deposit rates are considered a weaker measure and may present certain limitations.Consequently, return on Assets (ROA) is widely regarded as the most appropriate metric for assessing bank performance within the industry.ROA measures how efficiently a company utilizes its assets to generate profit, with higher ROA values indicating stronger financial performance due to higher returns on assets (Pondaag & Tulung, 2022).In conducting their operations, banks are inherently exposed to various types of risks.Business risk in banking refers to the level of uncertainty surrounding expected or projected outcomes (Utami & Silaen, 2018).Among the many risks faced by banks, credit risk often represented by the Non-Performing Loans (NPLs) ratio plays a significant role in influencing overall financial performance.Financial performance reflects a company's ability to manage and control its financial resources to achieve business objectives effectively and efficiently.It serves as a crucial indicator to assess the extent to which a company can generate profits and maintain financial stability.This study aims to analyze the effect of nonperforming loans, operational efficiency, and capital adequacy ratio on the financial performance of banking companies listed on the Indonesia Stock Exchange during the 2020-2024 period.This research employs a quantitative approach using secondary data in the form of annual reports from 33 banking companies selected through purposive sampling.The data analysis technique used is multiple linear regression, with data processing performed using E-Views software version 10.0.The results indicate that non-performing loans have a negative but insignificant effect on financial performance, operational efficiency has a positive and significant effect on financial performance, and capital adequacy ratio has a positive but insignificant effect on financial performance.