Analysis of the Effect of Third Party Funds, Mudharabah Financing, and Capital Adequacy Ratio on the Profitability of Islamic Commercial Banks in Indonesia

Abstract

This study aims to analyze the effect of Third Party Funds (DPK), mudharabah Financing, and Capital Adequacy Ratio (CAR), on the profitability of Islamic Commercial Banks in Indonesia as measured by Return on Assets (ROA). Profitability is an important indicator to assess the financial performance of Islamic banking in carrying out the intermediary function efficiently and in accordance with sharia principles.The method used in this research is a quantitative approach with secondary data type. The data used in this research is time series data in the form of Islamic banking statistical reports from the Financial Services Authority (OJK) for the period 2016 to 2023 based on quarterly data. The data analysis technique used is the Vector Error Correction Model (VECM) which aims to determine the short-term relationship and uses a cointegration test to see indications of a long-term relationship. The data was processed using the Eviews 12 application. The results showed that in the long term, mudharabah Financing and Capital Adequacy Ratio (CAR) variables have a positive and significant effect on ROA, while Third Party Funds (DPK) have no significant effect. In the short term, DPK at the 3rd lag has a negative and significant effect on ROA, while the financing and CAR variables do not show a significant effect. In addition, ROA is significantly influenced by itself at the 1st and 3rd lags, which indicates the existence of an autoregressive effect in the short term. The Granger causality test results also found a one-way causal relationship from CAR to ROA.