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Determinants of Islamic Bank Profitability: Evidence from Indonesia

Author

Listed:
  • Puji Sucia Sukmaningrum

    (Faculty of Economics and Business, Universitas Airlangga, Surabaya, Indonesia Author-2-Name: Kashan Pirzada Author-2-Workplace-Name: Asian Research Institute for Corporate Governance (ARICG) and Tunku Puteri Intan Safinaz School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok, Malaysia Author-3-Name: Sylva Alif Rusmita Author-3-Workplace-Name: Faculty of Economics and Business, Universitas Airlangga, Surabaya, Indonesia, Author-4-Name: Fatin Fadhilah Hasib Author-4-Workplace-Name: Faculty of Economics and Business, Universitas Airlangga, Surabaya, Indonesia, Author-5-Name: Tika Widiastuti Author-5-Workplace-Name: Faculty of Economics and Business, Universitas Airlangga, Surabaya, Indonesia, Author-6-Name: Achsania Hendratmi Author-6-Workplace-Name: Faculty of Economics and Business, Universitas Airlangga, Surabaya, Indonesia, Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)

Abstract

Objective - Islamic Banks have a distinct advantage that is not only conduct a commercial operation, but to also conduct social operations. Therefore, Islamic Banks plays an important role in developing the Indonesian economy. The aim of this study is to investigate the impact of internal and external factors that affect the profitability of Islamic Banks in Indonesia. Methodology/Technique � The methodology of this research is multiple regression. The object of this research is the Islamic banking industry in Indonesia. Internal factors include size, liquidity, asset quality, management, and efficiency ratio. External factors include interest rate and inflation. Return on Assets is used to measure profitability. The monthly data is collected from the financial reports of Islamic Banks between 2011 to 2016. Findings � The findings show that size, liquidity, assets quality, management ratio, interest rate and inflation lead to a greater Return on Assets (profitability) in Islamic Banks in Indonesia. Efficiency however does not have a significant effect on profitability of Islamic Banks in Indonesia. Novelty � Based on the results of this research, it can be concluded that the Islamic banking industry can use those variables to improve the profitability of Islamic banks in the future. In addition, there are two variables that affect the profitability of Islamic banking industry. For the Islamic banking industry should anticipate the movement of inflation and interest to improve the profitability of Islamic banks. Type of Paper - Empirical paper.

Suggested Citation

  • Puji Sucia Sukmaningrum, 2020. "Determinants of Islamic Bank Profitability: Evidence from Indonesia," GATR Journals jfbr167, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:jfbr167
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    References listed on IDEAS

    as
    1. Saima Javaid & Suha Alalawi, 2018. "Performance and Profitability of Islamic Banks in Saudi Arabia: An Empirical Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(1), pages 38-51, January.
    2. Saima Javaid & Suha Alalawi, 2018. "Performance and Profitability of Islamic Banks in Saudi Arabia: An Empirical Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(1), pages 38-51.
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    More about this item

    Keywords

    Islamic Banks; Profitability; Internal Factors; External Factors; Indonesia.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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