Do stability and size affect the profitability of Islamic rural bank in Indonesia?

Heri Sudarsono* -  Department of Economics, Faculty of Business and Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia, Indonesia
Fiqih Afriadi -  Department of Accounting, Faculty of Economics, Universitas Pamulang, Banten, Indonesia
Siti Aisiyah Suciningtias -  Department of Management, Faculty of Economics, Universitas Islam Sultan Agung, Semarang, Indonesia

Purpose – This study aims to analyze the effect of stability, size, financial performance and macroeconomic variables on the profitability of Islamic Rural Banks (BPRS) in Indonesia.

Methodology – This study uses panel data consisting of 82 BPRS from December 2012 to December 2018. This study uses a dynamic model using GMM (General Method of Moments) developed by Arellano & Bover (1995) and Blundell & Bond (1998). GMM is used to describe the actual conditions in the analysis of profitability of Islamic Rural Banks.

Findings – The findings of this study indicate that the stability and size of the BPRS have a negative effect on the level of ROA and ROE. Further, BAC has a positive effect on ROA but it has a negative effect on ROE. While the deposit structure (DS) is found to have a positive effect on ROA and ROE, FDRand the total deposit (DAR) is found to have a positive effect on both ROA and ROE. Meanwhile, the capital structure does not show a significant value on ROA. On the other hand, economic growth (GDP) and inflation (INF) do not show a significant relationship to ROA, but inflation is positively related to ROE.

Originality – This study is to determine the effect of the stability and the size of BPRS on its profitability. This study uses 6 models to obtain a consistent variation of variables in influencing profitability.

Keywords : Profitability, Stability, Size, Generalized method of momentum (GMM)

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Jurnal Ekonomi dan Keuangan Islam | Journal of Islamic Economics and Finance (JEKI)

P-ISSN 2088-9968; E-ISSN 2614-6908

Published by:
Pusat Pengkajian dan Pengembangan Ekonomi Islam - P3EI
(Center for Islamic Economics Studies and Development)
Faculty of Business & Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia

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JEKI by is under licensed by Creative Commons Attribution 4.0 International License.