The Effect of Credit Effectiveness and Fee-Based Income on Financial Performance

Purpose: This study examines the effects of credit effectiveness, third-party funds, and fee-based income on the financial performance of banking companies listed on the Indonesia Stock Exchange (IDX) during 2020–2024.

Research Methodology: A quantitative approach with descriptive and verificative methods was employed. Using purposive sampling, 30 banking companies were selected from the IDX. Secondary data obtained from annual financial reports were analyzed using multiple linear regression after classical assumption tests. Financial performance was measured using Return on Assets (ROA), while credit effectiveness was proxied by the receivable turnover ratio, third-party funds by total deposits, and fee-based income by the fee-based income ratio.

Results: The three independent variables jointly have a significant effect on financial performance. Partially, credit effectiveness and third-party funds have positive but insignificant effects on ROA, whereas fee-based income has a positive and statistically significant effect. Fee-based income is the strongest determinant of financial performance among the variables examined.

Conclusions: Financial performance is influenced more by non-interest income generated through banking services than by credit effectiveness or third-party funds. Expanding fee-based services can therefore enhance bank profitability.

Limitations: This study is limited to banking companies listed on the IDX, three explanatory variables, a five-year observation period (2020–2024), and ROA as the sole proxy for financial performance.

Contributions: This study enriches empirical evidence on the determinants of banking financial performance and provides practical insights for bank management, investors, and regulators in developing strategies to improve profitability through the optimization of fee-based income.