Determinant of Indonesian Islam Bank’s Profitability: Lessons from the BRI Syariah case

Abstract

Profit is the main key to the success and sustainability of Indonesian Islamic banks that join the banking industry in Indonesia as the last players. This study investigates the profitability of Islamic banks in Indonesia for the BRI Syariah case. Islamic banks' profitability is measured by two measurements, namely Return on Assets (ROA) and Return on Equity (ROE). This study uses the well-known Autoregressive Distributed lag model (ARDL) as a dynamic time series regression method using quarterly data from 2009Q1 to 2020Q4. The explanatory variables are asset, capital adequacy ratio (CAR), financing, cost-income ratio (CIR) and GDP. The findings indicate that specific bank variables and macroeconomic variables influence profitability. Size, CAR, and financing have a negative effect on profits while operating inefficiency has a negative effect on profits. This finding also shows that high economic growth will boost the profits of Islamic banks.