Gilda Maulina

Type of the article: Research Article

Abstract
This study investigates whether competitive intensity and environmental complexity moderate the relationship between risk-taking and performance among rural banks in Central Java, Indonesia. The study was conducted in Central Java, Indonesia, during January-December 2024, using secondary data from the audited financial statements of 239 rural banks for the fiscal year ending December 31, 2024. Moderated regression models were estimated to examine the effects of credit risk (non-performing loan ratio), market risk (net interest margin), liquidity risk (loan-to-deposit ratio), and operational risk (operating expenses to operating income) on rural banks' performance (return on assets), and to test interaction effects with competitive intensity (Lerner index) and environmental complexity. The results indicate that net interest margin is positively associated with return on assets, whereas the operating expenses to operating income ratio is negatively associated; the non-performing loan ratio and loan-to-deposit ratio are not statistically significant. Lerner index and environmental complexity show no direct association with return on assets. However, the Lerner index strengthens the positive association between net interest margin and return on assets and exacerbates the negative association between operating expenses and operating income and return on assets. Environmental complexity weakens the positive association between net interest margin and return on assets. These findings suggest that market conditions and environmental complexity shape how risk indicators translate into rural bank performance in 2024, underscoring the importance of operational efficiency and adaptive risk management in competitive and complex environments.