The Impact of Bank Characteristics and Macroeconomic Variables on the Islamic Commercial Banks Financial Performances: Case of Indonesia

International Journal of Research and Scientific Innovation (IJRSI) | Volume VII, Issue X, October 2020 | ISSN 2321–2705

The Impact of Bank Characteristics and Macroeconomic Variables on the Islamic Commercial Banks Financial Performances: Case of Indonesia 

Fahd Al-Shaghdari¹ , Barjoyai Bardai^2
1,2Al-Madinah International University, Malaysia

Abstract: This study aimed to investigate the impact of banks characteristics and macroeconomic variables on the financial performance among Islamic commercial Banks in Indonesia. This study applies a quantitative research methodology, which includes a numerical measurement and analysis of the factors which influence the Islamic commercial banks financial performance. In this study both internal (banks characteristics) and external (macroeconomic variables) factors that influence the Islamic banks’ financial performance were applied; the data for this study are Panel data, also called longitudinal data or cross-sectional time-series data. It comprises of panel dataset of 12 Islamic Banks from Indonesia. Data were compiled from the DataStream Database and balance sheet for the period of 2009 to 2019, with 132 observations (nT) altogether. The results show that the internal factors (Equity Financing, Bank Size and Assets Quality) are significant factors on Islamic commercial banks financial performance in ensuring success and increase in the profitability and better performance of Islamic commercial Banks in Indonesia. On the other hand, two factor from the internal factors that has no significant impact on the Islamic commercial Banks’ financial performance in Indonesia, namely the Debt Financing and Liquidity. In addition, from the macroeconomic indicators GDP growth rate act as the main external factor that significantly have an impact on the Islamic commercial banks’ financial performance in Indonesia. Nevertheless, inflation factor has no significant impact on the Islamic commercial Bank’s financial performance in Indonesia.

Keywords: Islamic Banks, Financial Performance, Equity Financing, Debt Financing GDP Growth Rate, Panel Data.

I. INTRODUCTION
The performance of financial system significantly affects Islamic banking especially in terms of its growth. In fact, the significant role of financial performance in the general economy of a country has been reported (Samail et al., 2018). In this context, financial performance relates to the act of executing financial activity, and in Abubakar and Aduda (2017), the concept of financial performance was described as the level to which financial objectives are being or have been achieved. Equally, financial performance relates to the process of gauging the outcomes of policies and operations of firms in monetary terms, and it also relates to the measurement of the firm’s general financial health within certain time period. Financial

Read More