The Influence of Internal and Macroeconomic Factors on the Profitability of Islamic Commercial Banks in Indonesia

Aam; Dito Prakoso

doi:10.58968/eii.v3i2.43

Authors

Aam Slamet Rusydiana SMART Indonesia
Dito Prakoso Central Bank of Indonesia

DOI:

https://doi.org/10.58968/eii.v3i2.43

Keywords:

Islamic bank, GMM, Panel data, Indonesia, Profitability

Abstract

This paper analyzes the determinant factors to the profitability of Islamic Commercial Banks in Indonesia during the period 2012 - 2019. To this objection, 14 Islamic Commercial Banks in Indonesia have been studied. A panel data study uses impact of internal bank and macroeconomic are combine to explain the profitability of Islamic Commercial Banks as measured by Capital Adequacy Ratio (CAR), Non-Performing Financing (NPF), Financing to Deposit Ratio (FDR), total of assets, inflation and Gross Domestic Product (GDP). This study analyzed using the Generalized Method of Moments (GMM) dynamic panel data. The results of the study found that only internal bank factors that significantly affect the profitability of Islamic Commercial Banks, namely CAR, NPF, and FDR. CAR has a positive effect on ROA, while FDR has a negative effect on ROA for Islamic Commercial Banks in Indonesia. Only NPF has a negative effect on the two proxies of profitability (ROA and ROE). The results of this study indicate that Islamic Commercial Banks in Indonesia need to manage their assets optimally and apply better prudential principles in financing management to minimize financing risks so as to increase bank profitability.

Downloads

Download data is not yet available.

References

Afzal, A., & N. Mirza. (2012). Interest rate spreads in an emerging economy: The case of Pakistan’s commercial banking sector. Economic Research, 25(4): 987-1004.

Al-Homaidi, E.A., Almaqtari, F.A., Yahya, A.T., & Khaled, A.S.D. (2020) Internal and external determinants of listed commercial banks’ profitability in India: dynamic GMM approach. Int. J. Monetary Economics and Finance, 13(1): 34–67.

Alharbi, A. T. (2017). Determinants of Islamic banks’ profitability: international evidence. International Journal of Islamic and Middle Eastern Finance and Management, 10(3), 331–350. https://doi.org/10.1108/IMEFM-12-2015-0161

Ali, M., Habbe, A. M., & Sabir, M. (2012). Pengaruh Rasio Kesehatan Bank Terhadap Kinerja Keuangan Bank Umum Syariah dan Bank Konvensional di Indonesia. Jurnal Analisis, 1(1): 79 – 86.

Arellano, M., & Bond, S. (1991). Some test of specification for panel data: Monte carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277-297.

Athanasoglou, P.P., Brissimis, S.N., & Delis, M.D. (2008). Bank-specific, industry-specific and macroeconomic determinants of bank profitability. Journal of International Financial Markets, Institutions and Money, 18(2): 121-136.

Azad, A. S. M. S., Azmat, S., & Hayat, A. (2019). What determines the profitability of Islamic banks: Lending or fee? International Review of Economics & Finance. https://doi.org/10.1016/j.iref.2019.05.015

Dasril, R. O. (2015). Dampak Inklusi Keuangan terhadap Kebijakan Kebijakan Moneter: Pengalaman Empiris dengan Data Panel Dinamis. Skripsi IPB Bogor.

Eljelly, A. M. A. (2013). Internal and external determinants of profitability of Islamic banks in Sudan: evidence from panel data. Afro-Asian J. Finance and Accounting, 3(3): 222–240.

Febrianthi, P. A. (2013). Pengaruh CAR, BOPO, NPF, dan FDR terhadap ROA bank umum syariah di indonesia. Ilmiah, 1(2).

Firdaus, M. (2011). Aplikasi Ekonometrika untuk Data Panel dan Time Series. Bogor (ID): IPB Press.

Hasan, M. K., & Lewis, M. K. (2007). Handbook of Islamic Banking. United Kingdom: Edward Elgar Publishing Limited.

Javaid, S., & Alalawi, S. (2018). Performance and Profitability of Islamic Banks in Saudi Arabia: An Empirical Analysis. Asian Economic and Financial Review, 8(1), 38–51. https://doi.org/10.18488/journal.aefr.2018.81.38.51

Masood, O., & Ashraf, M. (2012). Bank‐specific and macroeconomic profitability determinants of Islamic banks. Qualitative Research in Financial Markets, 4(2/3), 255–268. https://doi.org/10.1108/17554171211252565

Mokni, R. B. S., & Rachdi, H. (2014). Assessing the bank profitability in the MENA region. International Journal of Islamic and Middle Eastern Finance and Management, 7(3), 305–332. https://doi.org/10.1108/IMEFM-03-2013-0031

Munir, B., Salwa, U., & Bustamam, A. (2017), Camel Ratio on Profitability Banking Performance (Malaysia Versus Indonesia). International Journal of Management, Innovation & Entrepreneurial Research, 3(1): 30–39.

Putri, A. M. (2019). Pengaruh Faktor Internal dan Eksternal terhadap Profitabilitas Bank Umum Syariah di Indonesia [Skripsi]. Bogor: Institut Pertanian Bogor.

Sutrisno, (2016). Risk, Efficiency, and Perfomance of Islamic Banking: Empirical Study on Islamic Bank in Indonesia. Asian Journal of Economic Modelling, 4(1):47-56.

Syahrul, S. (2011). Penaksiran Parameter Model Regresi Data Panel Dinamis Menggunakan Metode Blundell dan Bond. Skripsi UI Jakarta.

Taufik, Yuliani, Raneo, A. P., Ghasarma, R., & Adam, M. (2020). Profitability Determinants of Islamic Private-Owned Banks and Conventional State-Owned Banks in Indonesia. International Journal of Innovation, Creativity and Change, 11(2): 432-450.

Trad, N., Trabelsi, M. A., & Goux, J. F. (2017). Risk and profitability of Islamic banks: A religious deception or an alternative solution? European Research on Management and Business Economics, 23(1), 40–45. https://doi.org/10.1016/j.iedeen.2016.09.001

Widarjono, A., Mifrahi, M. N., & Perdana, A. R. A. (2020). Determinants of Indonesian Islamic Rural Banks’ Profitability: Collusive or Non-Collusive Behavior? The Journal of Asian Finance, Economics and Business, 7(11), 657–668. https://doi.org/10.13106/jafeb.2020.vol7.no11.657

Zarrouk, H., Ben Jedidia, K., & Moualhi, M. (2016). Is Islamic bank profitability driven by same forces as conventional banks? International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 46–66. https://doi.org/10.1108/IMEFM-12-2014-0120