Abstract
The purpose of this research is to analyze the influence of Capital Adequacy Ratio (CAR) Third Party Funds (TPF), Non Performing Financing (NPF), Financing to Deposit Ratio (FDR), Operation Cost Operating Income (OCOI), Net Operating Margin (NOM), Gross Domestic Product (GDP), inflation and Return on Asset (ROA) as a proxy of Islamic bank’s profitability in Indonesia during 2011-2014 periods. The population of study was Sharia banking (BS) in Indonesia. Time series data from Indonesian Banking Statistics 2011-2014 were used as the primary data. Multiple linear regression was applied as method of analysis. The result shows that CAR, NPF, FDR and NOM did not affect profitability, while TPF, OCOI had negative effect on profitability. Meanwhile, GDP and inflation variable had significant effect with positive direction. Keywords: Sharia bank, ROA, TPF, NPF and inflation. JEL Classification: G21, E31
Highlights
In the last decade, Islamic banking and finance or Sharia bank grow very significantly throughout the world (Outlook Global Islamic Economy, 2016) both in the countries with majority Muslim population and in western countries with majority nonMuslim population (Saeed, 2006; Said, 2014)
Based on the adjusted R square value of 0.878, it can be stated that the variables of research including Capital Adequacy Ratio (CAR), Third Party Fund (DPK), Non Performing Financing (NPF), Financing to Deposit Ratio (FDR), BOPO, Net Operating Margin (NOM), Gross Domestic Product (GDP), inflation, and Loan Interest rate explain 87.8% of the Indonesian Sharia banking profitability variable, while the rest is explained by other factors or variables excluded from this research, including, among others, return on financing, rupiah exchange rate, etc
The result of current research shows that instead, the increase in inflation rate occurring affects positively the performance of Sharia general bank; this study indicates that the increase in inflation will improve the profitability of Sharia bank
Summary
Islamic banking and finance or Sharia bank grow very significantly throughout the world (Outlook Global Islamic Economy, 2016) both in the countries with majority Muslim population and in western countries with majority nonMuslim population (Saeed, 2006; Said, 2014). The 2015 report on Islamic banking and Financial Development states that the world’s total Sharia financial assets were $2 trillion, with Islamic banking representing 73 percent of these (OGIE, 2016). Indonesia as the country with which Muslim population number is the largest in the world should be the center of Sharia economic and financial development. The fact of matters as indicated by the Global Islamic Financial Report (GIFR, 2014), Indonesia occupies the fourth position among other countries with total asset US$ 35,65 billion. Otoritas Jasa Keangan (Financial Service Authority) reported that per May 2015, the total asset of Indonesian Sharia banking has reached IDR 278.91 trillion with marketplace of 4.67%. Muhammad Said, Faculty of Economics and Business State Islamic University Syarif Hidayatullah Jakarta, Indonesia. Herni Ali, Faculty of Economics and Business State Islamic University Syarif Hidayatullah Jakarta, Indonesia. Detail comparison on the growth rate between Islamic and conventional bank can be seen in the following table
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