Digital Adoption and Loan-to-Deposit Ratio in Bank Performance: NIM Mediation and CAR Moderation in Indonesian KBMI 3 and KBMI 4 Banks

Abstract

Digital transformation has become a central component of banking strategies; however, its contribution to profitability depends on how effectively technology adoption, financial intermediation, interest margins, and capital adequacy are managed. This study examined the effects of digital adoption and the Loan-to-Deposit Ratio (LDR) on Return on Assets (ROA), with Net Interest Margin (NIM) as a mediating variable and the Capital Adequacy Ratio (CAR) as a moderating variable. A quantitative panel data approach was applied to 16 Indonesian banks classified as KBMI 3 and KBMI 4 during 2020–2024, resulting in 80 bank-year observations. Model selection indicated the use of a Random Effects Model for the NIM model and a Fixed Effects Model for the ROA model. Mediation analysis was conducted using the Sobel test and a 95% Monte Carlo confidence interval as a robustness check. The results showed that digital adoption had a positive effect on ROA but did not significantly affect NIM. LDR did not have a direct effect on ROA but positively affected NIM, while NIM positively affected ROA. NIM did not mediate the relationship between digital adoption and ROA but significantly mediated the relationship between LDR and ROA. CAR weakened the effects of digital adoption on NIM and ROA, strengthened the relationship between NIM and ROA, and did not moderate the LDR-related relationships. These findings indicated that bank profitability depended on the ability to transform digital capabilities and credit intermediation into economic value while maintaining capital resilience and financial stability.