The Effect of Credit Risk to Islamic Bank Profitability with Islamic Income and Profit Sharing Ratio as Moderating Variable

DOI: 10.5176/2010-4804_2.1.152

Authors: Sudarso Kaderi Wiryono and Sari Rahmayuni

Abstract:

This paper examines the effect of sharia conformity proxied by Islamic income, and profit sharing ratio in the relationship between bank risk consisting of credit (financing)and liquidity risk with the profitability of Islamic Banking proxied by ROA, ROE and Profit Margin. Many studies reveal that the system of profit sharing on Islamic banks influence on bank risk. This analysis done by using sharia conformity as moderating variables. Using data from three largest commercial Islamic Banks in Indonesia, results indicate that only on profit margin that the Islamic income and profit sharing ratio moderate the relationship between risk and profitability of Islamic Banking. But in the ROA and ROE, found that the Islamic income and profit sharing ratio is not a moderating variable.

Keywords: credit risk; liquidity risk; islamic income; profit margin; profit sharing ratio; ROA; ROE; sharia conformity