Capital, Efficiency, Non-Performing Financing and Profitability: Sharia Banks in Indonesia

Abstract

This study aims to examine the influence of the variable capital adequacy, efficiency, and financing problems on the profitability of Islamic banks in Indonesia. This type of research uses explanatory research using secondary data in the form of financial ratios from 2015 to 2019. The population in this research is 14 Islamic banks in Indonesia. By using the purposive side, the research sample was 13 Islamic banks and 65 data. The data analysis technique used multiple regression and included a normality test, classical assumption, F-test, hypothesis test, and determination coefficient test. The results of the study concluded that the variables of capital adequacy, efficiency, and financing problems had a significant effect on the profitability of Islamic banks in Indonesia. The results of this study support the theory of efficient capital structure, although the composition of Islamic bank capital comes mostly from externals, because Islamic bank management is very efficient in managing funding and financing activities and can manage banks prudently where Islamic banks can suppress problematic financing, Islamic banks can achieve high profit. This is also supported by the existence of a temporary syirkah fund source of capital that is neither a type of debt nor owner's equity. Temporary syirkah funds are a very efficient source of funds for Islamic banks because the bank will reward the owners of temporary syirkah funds only if the bank makes a profit. Conversely, if a Sharia bank does not gain a profit, aka a loss, then the Sharia bank does not provide returns to the owner of temporary syirkah funds. This is the advantage of Islamic banks compared to conventional banks.