The Application of Variance-based Structural Equation Modeling for Predicting the Intermediation Margin of Islamic Banking Industry

Abstract

The purpose of this paper is to predict the determinants of bank margins (bankspecific as well as macroeconomic condition) in Islamic banks by applying SEM-PLS. Data were collected through financial statements of 11 Islamic banks in Indonesia obtained in each website of bank, covering bank quarter observations for the period of 2013 to the second quarter of 2018. The results of this study indicate the specific factors of banks that have the greatest influence on NIM are liquidity variables. In contrast, macroeconomic factors (GDP and inflation) do not have a significant effect on Islamic bank NIMs, but specific bank and macroeconomic factors together affect Islamic bank NIMs. while the macroeconomic condition is not significant. In this study using the method of investigating the determinants of the margin of financial intermediation for Islamic banks operating in Indonesia by applying SEM-PLS. This finding improves our understanding on the usage of SEM-PLS to predict the margin intermediation of Islamic banks. This study provides a guidance and strategy for Islamic bank managers to manage their intermediation margin which can affect their customers interest to use Islamic banking services.

Interconnection of Inflation, Bi Rate, and Exchange Rate on Mudharabah and Murabahah Financing

“…And a price increase of 100 percent or more will result in a loss of public confidence in the currency and a tendency to invest in assets or other forms of security. The findings of this study are consistent with (Al-Shaghdari et al, 2023;Kamila &;Suhartanto, 2019;Musa et al, 2022;Priyadi et al, 2021) Based on the results of the Impulse Response Function (IRF) test, it has been determined that murabahah responds positively to the impact that occurs on inflation variables. This implies that an inflation shock of 1 standard deviation will increase murabahah financing income.…”