The Impact of Banks Characteristics Variables on Indonesian Islamic Banks Profitability

- Cupian

Abstract


The aim of this study is to determine the effect of bank characteristic (internal variables) on the performance of Islamic banks in Indonesia in terms of their ROA for the period 2008–2013. Therefore, this study was conducted in order to examine the determinants of profitability for Islamic Banking Institutions in Indonesia banking system. The bank-specific determinants (internal factors) include third party funds, income from financing activities, Income from service activities, overhead cost, interest-free earning assets, financing ratio, total assets and equity ratio. The methodology employed is the Least Square Dummy Variable (LSDV) panel data analysis, using quarterly data from nine Islamic banks, which consist of Full Fledge Islamic banks in Indonesia for the period 2010-2013. The result revealed that Out of eight independent variables, five are significant in determining the profitability. Income from service activities, interest-free earning assets and total asset has a positive relationship with the dependent variable, return on asset. On the other hand, third party funds and overhead cost determines the Return on Assets negatively. For the future studies, it is recommended to have a wider scope where other Indonesian Islamic financial institutions and more determinant factors can be taken into consideration.

Aus. J. Isla. Finan. & Busi. Vol 2(2), October 2016, P 88-104


Keywords


bank characteristics; Islamic banks; Indonesia and profitability

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