The mediating role of operational costs on financial performance of Sharia Banks in Indonesia

Abstract

The objectives of this study are to determine the effects of the Capital Adequacy Ratio (CAR), Financing to Deposit Ratio (FDR) and Non-Performing Financing (NPF) on the Return on Assets (ROA) mediated by operational costs to operational income. The samples of this study are 12 Sharia Banks in Indonesia that published their financial reports to the Financial Services Authority in 2013 until 2019. The analysis technique used is regression analysis and path analysis. The results of this study are that Capital Adequacy Ratio has a positive significant effect on financial performance in Sharia Banks. Secondary results are that the Financing to Deposit Ratio and Non-Performing Financing have an insignificant, negative impact on financial performance in Sharia Banks. Our third results are that operational costs have a negative, significant impact on financial performance in Sharia Banks. Operational costs cannot mediate the Capital Adequacy Ratio, Financing Deposit Ratio and Non-Performing Financing on financial performance in Sharia Banks. The implication of this research is managers of Sharia Banks in Indonesia need to prioritize policies related to the Capital Adequacy Ratio and Operational Costs for profitability’s increasing.