Uncovering the performance of Islamic banks in Indonesia from 2020 to 2023

Abstract

Indonesian Islamic banking is growing rapidly, with assets growing 65% per year, supporting the national economy but facing competitive challenges. In-depth research on Capital Adequacy Ratio (CAR), Operating Costs to Operating Income (BOPO), and liabilities of Islamic banks is essential for the stability and growth of the sector, helping to optimise operational efficiency and mitigate financial risks. This study focuses on CAR and BOPO management to improve the profitability of Islamic banks. It analyses the impact of CAR, BOPO, and liabilities on Return on Assets (ROA) of Indonesian Islamic banks using a panel data methodology. This study uses a quantitative econometric design with panel data modelling to analyse the performance of Islamic banks in Indonesia from 2020 to 2023. The results of partial tests on the variables comprising Liability, BOPO, and CAR show that the three independent variables do not significantly affect ROA in the Indonesian Islamic banks including PNBS, BTPS, BRIS, and BANK. This indicates that Liability, BOPO, and CAR do not have a significant impact on the profitability, and hence performance of the Islamic banks.