Journal of Risk Analysis and Crisis Response

What Factors Determine Bank Profitability? Evidence from the Indonesian Banking Industry

Lutfiatul Azizah — 2026-07-01

Bank profitability is a relevant topic in financial economics, particularly in emerging markets. This study investigates the determinants of bank profitability in Indonesia over the 2011–2024 period, focusing on the underexplored segment of Primary Dealer banks. A Panel ARDL–PMG methodology is applied to a balanced panel of 13 banks over 14 years (2011–2024) to examine the long-run and short-run effects of macroeconomic and bank-specific variables on return on assets (ROA) and return on equity (ROE). The results identify operational efficiency (BOPO) and capital adequacy (CAR) as the dominant long-run determinants of bank profitability. A key asymmetry is observed in the NPL effect: while NPL consistently erodes equity returns (ROE), its effect on asset returns (ROA) is largely insignificant in most specifications and negative only when exchange rate controls are included. Among macroeconomic variables, the policy interest rate positively affects both profitability measures in the long run, while the exchange rate exhibits asymmetric effects across ROA and ROE. In the short run, internal bank factors dominate, with macroeconomic effects emerging predominantly over the long horizon. The paper contributes to the banking literature by highlighting asymmetric profitability dynamics within a dynamic panel framework and providing policy-relevant insights for bank management and financial regulatory authorities.

Paradigm Shift Toward Just and Sustainable Welfare: How Financial Inclusion Shapes Inclusive Green Growth Under Digital Infrastructure

Muh. Irnandas — 2026-07-01

This study aims to examine the influence of financial inclusion dimensions accessibility (ACC), availability (AVA), and usability (USE) on the Inclusive Green Growth Index (IGGI) across all provinces in Indonesia, and to assess the moderating role of Digital Infrastructure (DIF) in strengthening this relationship. The study uses panel data from all provinces in Indonesia for the period 2019-2024 and employs three analytical approaches: Fixed Effects Model (FEM), Panel Vector Error Correction Model (PVECM), and moderation analysis using DIF. The findings reveal that in the FEM, ACC and USE have a positive and significant effect on IGGI, while AVA has a negative significant effect. The dynamic analysis using PVECM indicates that in the short term, ACC negatively affects IGGI, AVA and USE positively affect IGGI, whereas in the long term, ACC remains negative, USE remains positive, and AVA is no longer significant. The moderation analysis shows that DIF does not significantly moderate the effects of ACC and USE, while AVA is negatively significant, indicating that digital infrastructure has not fully enhanced the role of financial inclusion in promoting inclusive green growth. These results imply that policy strategies should focus on expanding equitable access to financial services, enhancing financial and digital literacy, strengthening regulatory support, and tailoring digital infrastructure development to regional and demographic conditions to foster sustainable inclusive green growth. The study’s limitations include the use of quantitative DIF measures without assessing the quality of technology adoption. Future research is recommended to explore the impact of financial inclusion at the micro level, adopt more current indicators, and conduct analyses by demographic regions or cross-country comparisons to validate findings.

Does Governance-Based Adaptation Capacity Reduce Human Exposure to Disasters? Evidence from Disaster-Exposed OECD Economies

Kemal Erkişi — 2026-06-30

This study examines whether governance-based adaptation capacity reduces human exposure to natural disasters in 14 disaster-exposed OECD countries over the period 2000–2024. Using a two-way fixed-effects framework with Driscoll–Kraay standard errors, the analysis evaluates the joint roles of temperature anomalies, disaster frequency, and governance capacity in shaping the disaster-affected population. The results show that temperature anomalies have a nonlinear effect on human exposure, while disaster frequency increases disaster-affected population across all model specifications. By contrast, governance-based adaptation capacity reduces baseline exposure. In the preferred specification, the coefficient of governance capacity is negative (−0.983), whereas the interaction between disaster frequency and governance capacity is positive (0.071), indicating that institutional capacity lowers baseline vulnerability but does not fully offset the effect of repeated hazard occurrence. These findings suggest that governance-based adaptation plays a protective role, yet its effectiveness remains conditional on the scale and frequency of climate-related hazards. The results underline the importance of strengthening institutional capacity as part of broader disaster risk reduction and adaptation strategies.

CreditRisk+ Model with Heterogeneous Obligors

Reza Habibi — 2026-07-01

The purpose of the paper, the main research process and the methods adopted, the main results and important conclusions should be expressed clearly in concise and clear language. If possible, mention as stated in Basel accord, the Creditrisk+ is a main tool for running stress testing in a credit portfolio. There are some modifications to original format of this protocol. In the current manuscript, in a sub-credit portfolio with heterogeneous obligors, with the same nonrandom probability of default, some limiting behaviors of total loss of portfolio are studied. In the case of random and correlated probabilities of default with ARTA models (autoregressive to any things model), by the Eigen analysis, some other limiting distributions are proposed. Finally, simulation results are proposed to verify some parts of the limiting results.

Evaluating the Interplay of Macroeconomic Indicators and the Amman Stock Exchange: Implications for Contemporary Investment Strategies

Izzeddien Ananzeh — 2026-07-01

This research aims to examine the dynamic interrelationships among pivotal Jordanian macroeconomic indicators, including GDP, CPI, IPI, M2, Worker Remittances (WRMIT), and Amman Stock Exchange Index (ASEI) over the period spanning from 2012 to 2022. The study employs many statistical methodologies, including the Johansen co-integration test, ARDL approach, the Error Correction Model (ECM), and the Granger causality test. The findings of this study robustly affirm the existence of both long-term and short-term relationships between the ASE and the macroeconomic variables. Specifically, the research substantiates a sustained long-term equilibrium association between ASEI and GDP, CPI, M2, IPI, and WRMIT. Furthermore, it identifies a long-term causality running from these economic indicators to the Amman Stock Exchange, as well as a short-term causality from CPI, GDP, and WRMIT to the ASE. These results raise questions about the ASE's operational efficiency, and investors should incorporate prevailing macroeconomic variables into the investment decision process

Drought Risk Mapping and Parametric Insurance in Agriculture: A Machine Learning-Based Framework

Yousra Belhsen — 2026-07-01

Climate change has increased both the frequency and intensity of agricultural droughts, reinforcing the need for risk transfer instruments that rely on objective environmental indicators. This study introduces a comprehensive framework for the development of drought index insurance using openly available climatic and satellite data. The approach builds synthetic indicators that combine precipitation-based measures (SPI, SPEI) with vegetation indices (NDVI), selected through statistical learning techniques such as Lasso regression, Random Forest, and Partial Least Squares. These indicators are then embedded in parametric indemnity functions whose shape depends on their correlation with crop yields, ensuring decreasing or increasing payouts as appropriate. Calibration with historical yield data is performed to minimize basis risk, and pure premiums are derived through simulation methods including empirical resampling, bootstrap, Monte Carlo, and kernel density estimation. The framework is applied to three Moroccan regions with contrasting agro-climatic conditions and representative crops. Results indicate that the proposed design substantially lowers basis risk while preserving transparency, interpretability, and reproducibility. More broadly, the framework provides a transferable methodological contribution by linking machine learning with actuarial tools, supporting the development of weather index insurance in contexts where data availability remains limited.

Are Digital Skills and Financial Knowledge Complementary? Evidence from Older Households’ Asset Allocation in China

Zhong-Qiang Zhou — 2026-06-30

Data from the 2019 and 2021 waves of the China Household Finance Survey were used to examine whether digital skills and financial knowledge jointly shape financial asset diversification among Chinese households headed by adults aged 60 years or older. Digital skills were measured by smartphone use and third-party mobile-payment-account adoption, financial knowledge by correct responses to interest-rate and inflation questions, and capability complementarity by the interaction between the two standardized indices. Pooled ordinary least squares models with province and year fixed effects, temporal-prediction specifications, inverse-probability weighting, and alternative measurement and sample checks were estimated. Digital skills, financial knowledge, and their interaction were positively associated with diversification. In the preferred specification, the corresponding coefficients were 0.0134, 0.0118, and 0.0167, respectively, and all were significant at the 1% level. Capability complementarity was concentrated in broader portfolio scope: dual-enablement households were more likely to form multi-asset portfolios and less likely to hold only cash and bank deposits, with significant super additive increments. The association was stronger among households willing to accept some risk and weaker among households residing in rural areas whose heads held agricultural hukou status. The findings indicate that digital operational competence and financial judgment function as complementary capabilities and support integrating digital-skills training with financial education for older adults.