ASSESSING THE IMPACT OF FINTECH ADOPTION ON BANKING STABILITY IN INDONESIA: A VECM-BASED EMPIRICAL ANALYSIS (2018-2024)

Abstract

This study examines the impact of financial technology (fintech) adoption on banking sector stability in Indonesia over the period 2018–2024. The research aims to investigate both short-run and long-run relationships between fintech development and key banking stability indicators, namely the Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), and Gross Domestic Product (GDP). A Vector Error Correction Model (VECM) is employed to capture short-term dynamics and long-term equilibrium relationships among variables. Johansen cointegration tests confirm the existence of significant long-run relationships. The VECM results indicate that fintech adoption has a positive and significant effect on CAR and GDP in both the short and long run, while its impact on NPL remains statistically insignificant. These findings suggest that fintech expansion contributes to strengthening bank capitalization and supporting economic growth without directly increasing credit risk. The study highlights the importance of adaptive regulatory frameworks to harness fintech benefits while preserving financial system stability.