The influence of management risk on banking financial performance at Bank Syariah Indonesia: Literature Review

Abstract

Banks play a crucial role in supporting economic growth as key agents of economic development, and their performance significantly influences the stability and progress of a country’s economy. As an essential component of the financial system, the banking industry must maintain sound performance to remain healthy and sustainable. Historical experience, particularly the 1998 financial crisis in Indonesia, demonstrated that instability in the financial sector can impose enormous recovery costs, requiring substantial time, resources, and efforts to restore public confidence in the financial system. These lessons highlight the importance of effective regulation, supervision, and sound risk management in preserving overall financial stability.

This study aims to examine the influence of risk management on banking financial performance. The research employs a literature review method by analyzing scholarly articles published between 2014 and 2021, collected through Google Scholar using the keyword banking risk management. The findings indicate that the implementation of risk management, especially in managing credit risk, interest rate risk, solvency risk, and liquidity risk, has a significant effect on banking financial performance, as measured by Return on Equity (ROE). The study also finds that accurate and transparent disclosure of risk management practices positively contributes to profitability and firm value. Therefore, the main conclusion of this research is that risk management plays a vital role in influencing and improving banking financial performance in Indonesia, particularly in supporting profitability, stability, and long-term sustainability.