DETERMINANTS OF ISLAMIC BANKING PROFITABILITY IN INDONESIA

• Main Author: Hikmatul A'la, Sabila
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/57764
• Institution: Institut Teknologi Bandung

Banking is a sector that affects economic development. Any economic growth and stability mostly depend on its banking sector. Performance of Islamic banking can be judged by their profitability. However, the prohibition of receiving interest and speculative trading in the transaction affects profitability and Islamic bank’s development. This research focuses on finding the internal-bank factors that may affect the profitability of Islamic banks in Indonesia. Internal-bank factors as independent variables that tested in this research are bank size (SIZE), Capital Adequacy Ratio (CAR), Liquidity of Assets (LIQ), Operational Efficiency (BOPO), Gearing Ratio (GR), Non Performing Financing (NPF), and Financing to Deposit Ratio (FDR). Return on Asset (ROA) and Return on Equity (ROE) used as dependent variables which represent profitability of banks. Through purposive sampling method, 7 Islamic banks selected as samples that met the criteria of 5 years observation period (2016-2020). The data samples have passed the classical assumption test and continued with multiple linear regression using SPSS 26. The result shows that partially SIZE and BOPO give a negative significant effect on ROA and ROE. CAR gives positive effect on ROA but gives no effect on ROE. LIQ gives a positive significance in ROA but insignificant on ROE. GR gives a positive significant influence on ROA and ROE. NPF and FDR have no effect on profitability of Islamic banks in Indonesia. Although some of the internal banks' factors didn’t give effect on the profitability partially, the simultaneously significant effect is given by SIZE, CAR, LIQ, BOPO, GR, NPF, and FDR on the profitability (ROA and ROE) of Islamic banks in Indonesia