Digitalization and Financial Performance of Regional Development Banks: Net Interest Margin as A Mediator

Abstract

Digital transformation has become essential for Regional Development Banks (BPDs); however, its contribution to profitability depends on effective financial intermediation, interest margin management, and sufficient capital strength. This study examines the effects of digital adoption, the loan-to-deposit ratio (LDR), and net interest margin (NIM) on return on assets (ROA), while also testing the moderating role of the capital adequacy ratio (CAR) and the mediating role of NIM. A quantitative explanatory research design was applied to 27 Indonesian BPDs observed from 2021 to 2025, resulting in 135 observations. Data obtained from annual reports, financial reports, and sustainability reports were analyzed using panel-data regression with the Random Effects Model and the Sobel test. The results show that digital adoption negatively affects NIM and ROA, while LDR does not significantly affect either NIM or ROA. NIM negatively affects ROA. CAR positively moderates the relationships between digital adoption and NIM, digital adoption and ROA, and NIM and ROA; however, it does not moderate the effects of LDR on NIM or ROA. Furthermore, NIM does not mediate the effects of digital adoption or LDR on ROA. The study concludes that sustainable BPD performance requires integrated digital capabilities, strong capitalization, operational efficiency, sound asset quality, risk-based pricing strategies, cybersecurity resilience, and effective risk governance to support long-term financial sustainability.