Credit Risk Management and Islamic Banking Performance - Evidence from Indonesia

Supiyadi, Dedi; Mulyadi, Deddy; Fithriani, Merry; Syaiful, Syaiful; Ikhsan, Zulfikar; Rahman, Luthfi

doi:10.5220/0007079201930199

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“…In their study Hariyanto, stated that the credit risk is very influential factor on banks profitability [26], the study Daly also found that credit risk and operating efficiency are the most important factors in improving bank profitability [27]. The study on the determinants of Sharia banking performance conducted by Supiyadi [28], revealed that the main factors affecting the profitability of Syariah banks are bank size and consumer growth. According to Bertin, Sharia bank profitability is influenced by Credit Risk, Capital Adequacy Ratio, Company Size and Liquidity Risk [29].…”

Section: Literature Reviewmentioning

confidence: 98%

The Determinants of Bank Profitability: Empirical evidence from Indonesian Sharia Banking Sector

Supiyadi¹,

Arief²,

Nugraha³

2019

Proceedings of the 1st International Conference on Economics, Business, Entrepreneurship, and Finance (ICEBEF 2018)

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This paper aims to examine the internal and external determinants of sharia banks profitability in Indonesia over the period 2010-2017. The bank profitability is measured by return on assets (ROA) as a function of bank-internal and external determinants. Using balances data set and fixed effect model, the empirical results have found strong evidence that both internal and external factors have a strong influence on the profitability. The internal factors of the bank i.e., capital adequacy, credit risk, and asset size have a significant and negatif effect on bank profitability, while liquidity have a positive and significant impact on banks profitability. However, the external factors only inflation has a significant and positive effect, while GDP has a negatif and significant effect on banks profitability. This result suggest that banks can improve their profitability through increasing banks liquidity, reinforce their capital structure, reduce their assets sizes and credit risk, in addition banks should be anticipate the external factors, thus sharia banks will be more competitive than conventional banks.

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