Abstract
Profitability is an important indicator of the bank’s performance. In 2014, profits of Islamics bank in Indonesia decreased by 19.7 percent. This paper aims to analyze the impact of bank-specific factors to The Islamic banking system in Indonesia has shown better development Islamic bank’s profitability. This study observed 11 Islamic banks in the Indonesia banking system in the period between 2010 - 2014. The quarterly data are taken from the Indonesian Banking Directory, published by the Financial Service Authority (OJK). Using panel data regression, the Fixed Effect Model with cross-sectional correlation (SUR) has selected as the best model. According to the obtained results, among internal factors of bank profitability, the most important one is the operating efficiency ratio. Furthermore, profitability is influenced negatively by liquidity risk, solvency risk, credit risk, and bank size.
Highlights
Starting from the establishment of the banks in Indonesia become really important to Indonesia’s first Islamic bank namely Bank observe
The absolute value of 5 independent variables used in this study of t-statistic variable of Financing to Deposit Ratio (FDR), Capital Adequancy Ratio (CAR), and Size, (FDR, CAR, Operation Efficiency Ratio (OER), NPF, Size) could explain the are greater than the critical value of the partial variation of dependent variable (ROA) for about two-way test 2,2613
This study shows a negative relationship by Curak, et al (2012), Petria, et al (2013), and between solvency risk, which proxied by capital Rahaman (2015) which found that the effect of adequacy ratio (CAR), with profitability
Summary
Starting from the establishment of the banks in Indonesia become really important to Indonesia’s first Islamic bank namely Bank observe. While external factors are economic are : growth, inflation, and exchange rates which are H1: Financing to Deposit Ratio (FDR) has a factors that are not associate with the bank’s significants effect to Return on Assets management but reflect the specifications (ROA) in Islamic banks in Indonesia of industrial and macroeconomic that affect H2: Capital Adequancy Ratio (CAR) has a financial performance. This in line with the significants effect to Return on Assets study by Athanasoglou, et al (2006), Idris, et al (ROA) in Islamic banks in Indonesia (2011), Curak, et al, et al, (2012), Teng, et al H3: Operation Efficiency Ratio (OER) has a (2012), and Abduh & Yameen (2013). There are 5 hypotheses of the determinants of Islamic bank profitability, those
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