Financial Performance and Profitability Of Islamic Banking On Economic Growth In Indonesia

Lia Nazliana Nasution; Ade Novalina; Annisa Ilmi Faried;

Abstract

Since the enactment of the law No. 21 of 2008 concerning Sharia Banking, the development of the Islamic banking industry in Indonesia increasingly and has an adequate legal basis so that it will encourage growth faster. Recorded total assets of Sharia Commercial Banks and Sharia Business Units continue to increase every year. With the progress of the increasing development, it is expected that the role of the Islamic banking industry in supporting the national economy will be increasingly significant. The purpose of this study is to analyze the effect of Islamic banking financial performance on economic growth in Indonesia through mediation of profitability. The data which is used to measure Islamic financial performance are Capital Adequacy Ratio (CAR), Non Performing Financing (NPF), Financing to Deposit Ratio (FDR), and Operational Costs to Operating Income (BOPO). While the profitability of Islamic banking use data Return On Assets (ROA). The data sourced from Islamic banking financial reports and Indonesian economic growth reports during the 2005 – 2018 periods. This research method uses Path Analyze. The result shows that partially, CAR, NPF, FDR, and BOPO give a negative and not significant direct effect on ROA. But ROA has a posiive and significant direct effect on economic growth in Indonesia.