Improve operational efficiency

Oct 13, 2025 by wbrum.org 138 views

Effect of Operational Efficiency Ratio, Financing to Deposit Ratio, Non Performing Financing, Capital Adequacy Ratio, and Third Party Fund on the Profitability of Sharia Commercial Bank in Indonesia for the 2013-2018 Period

Introduction

The banking industry in Indonesia has experienced significant growth over the past decade, with the number of Sharia commercial banks increasing rapidly. However, the profitability of these banks remains a concern, with many struggling to maintain their financial performance. One of the key factors that affect the profitability of Sharia commercial banks is the management of financial ratios. In this study, we aim to investigate the effect of several financial ratios, namely the Operational Efficiency Ratio, Financing to Deposit Ratio, Non Performing Financing, Capital Adequacy Ratio, and the Third Party Fund, on the profitability of Sharia commercial banks in Indonesia during the 2013-2018 period.

Background

The banking industry in Indonesia is highly competitive, with many banks vying for market share. To remain competitive, banks must maintain high levels of profitability. However, the management of financial ratios is a critical factor that affects the profitability of Sharia commercial banks. The Operational Efficiency Ratio (OER) measures the efficiency of a bank's operations, while the Financing to Deposit Ratio (FDR) measures the bank's ability to finance its customers. The Non Performing Financing (NPF) ratio measures the bank's ability to manage its non-performing loans, while the Capital Adequacy Ratio (CAR) measures the bank's capital adequacy. Finally, the Third Party Fund (TPF) ratio measures the bank's ability to attract third-party funds.

Methodology

This study used a purposive sampling method to select 6 Sharia commercial banks operating in Indonesia during the 2013-2018 period. The data used in this study were downloaded from the official website of each bank and analyzed using SPSS software. The analysis model applied includes descriptive statistical analysis and multiple linear regression analysis, followed by hypothesis testing.

Research Result

From the results of the analysis conducted, we found several key findings related to the influence of each variable on ROA. Partially, the results of the study showed that:

Operational Efficiency Ratio (OER): The OER has a negative and significant effect on profitability (ROA). This indicates that the higher the ratio of operational efficiency, the lower the level of profitability achieved by the bank. In this context, banks must pay attention to operational costs to remain competitive and profitable.
Non Performing Financing (NPF): The NPF has a positive and significant influence on profitability (ROA). This finding shows that banks that are able to manage financing that are not well well can increase their income. Although it may sound contradictory, good NPF management may provide an opportunity to restructure financing, thereby increasing income.
Third Party Fund (TPF): The TPF also shows a negative and significant effect on profitability (ROA). This shows that an increase in third party funds is not always directly proportional to the increase in profitability. Banks must be wise in managing these funds in order to maximize profits.

Meanwhile, Financing to Deposit Ratio (FDR) and Capital Adequacy Ratio (CAR) did not show a significant effect on profitability. This indicates that the two ratios may not be a major factor that affects the profitability of Islamic banks in Indonesia during the period studied.

Conclusion

This study shows that the management of the right financial ratios is very important for the profitability of Islamic banks. Although some ratios have a negative influence, in-depth understanding of market dynamics and risk management is the key to improving the financial performance of Islamic banks in Indonesia. In the future, Islamic banks need to formulate an effective strategy to improve the ratio of operational efficiency and NPF management in order to increase overall profitability.

Recommendation

Based on the findings of this study, we recommend that Islamic banks in Indonesia should:

Improve operational efficiency: Banks should pay attention to operational costs and improve their operational efficiency to remain competitive and profitable.
Manage non-performing financing effectively: Banks should manage their non-performing loans effectively to increase their income.
Be wise in managing third-party funds: Banks should be wise in managing third-party funds to maximize profits.
Formulate an effective strategy: Banks should formulate an effective strategy to improve the ratio of operational efficiency and NPF management in order to increase overall profitability.

Limitation

This study has several limitations. Firstly, the study only focused on Sharia commercial banks operating in Indonesia during the 2013-2018 period. Secondly, the study only used a purposive sampling method to select the sample. Finally, the study only used descriptive statistical analysis and multiple linear regression analysis to analyze the data.

Future Research

This study provides several avenues for future research. Firstly, the study can be replicated in other countries to see if the findings are generalizable. Secondly, the study can be extended to include other variables that affect the profitability of Islamic banks. Finally, the study can be used as a basis for developing a model to predict the profitability of Islamic banks.

Conclusion

In conclusion, this study provides valuable insights into the effect of financial ratios on the profitability of Sharia commercial banks in Indonesia. The study shows that the management of financial ratios is critical for the profitability of Islamic banks. We hope that this study will contribute to the development of Islamic banking in Indonesia and provide a basis for future research in this area.
Q&A: Effect of Operational Efficiency Ratio, Financing to Deposit Ratio, Non Performing Financing, Capital Adequacy Ratio, and Third Party Fund on the Profitability of Sharia Commercial Bank in Indonesia for the 2013-2018 Period

Q: What is the main objective of this study?

A: The main objective of this study is to investigate the effect of several financial ratios, namely the Operational Efficiency Ratio, Financing to Deposit Ratio, Non Performing Financing, Capital Adequacy Ratio, and the Third Party Fund, on the profitability of Sharia commercial banks in Indonesia during the 2013-2018 period.

Q: What are the key findings of this study?

A: The key findings of this study are:

Operational Efficiency Ratio (OER) has a negative and significant effect on profitability (ROA).
Non Performing Financing (NPF) has a positive and significant influence on profitability (ROA).
Third Party Fund (TPF) also shows a negative and significant effect on profitability (ROA).
Financing to Deposit Ratio (FDR) and Capital Adequacy Ratio (CAR) did not show a significant effect on profitability.

Q: What does the study suggest about the management of financial ratios?

A: The study suggests that the management of financial ratios is critical for the profitability of Islamic banks. Although some ratios have a negative influence, in-depth understanding of market dynamics and risk management is the key to improving the financial performance of Islamic banks in Indonesia.

Q: What are the implications of this study for Islamic banks in Indonesia?

A: The study has several implications for Islamic banks in Indonesia. Firstly, banks should pay attention to operational costs and improve their operational efficiency to remain competitive and profitable. Secondly, banks should manage their non-performing loans effectively to increase their income. Thirdly, banks should be wise in managing third-party funds to maximize profits. Finally, banks should formulate an effective strategy to improve the ratio of operational efficiency and NPF management in order to increase overall profitability.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the study only focused on Sharia commercial banks operating in Indonesia during the 2013-2018 period. Secondly, the study only used a purposive sampling method to select the sample. Finally, the study only used descriptive statistical analysis and multiple linear regression analysis to analyze the data.

Q: What are the avenues for future research?

A: This study provides several avenues for future research. Firstly, the study can be replicated in other countries to see if the findings are generalizable. Secondly, the study can be extended to include other variables that affect the profitability of Islamic banks. Finally, the study can be used as a basis for developing a model to predict the profitability of Islamic banks.

Q: What are the practical implications of this study for policymakers and regulators?

A: The study has several practical implications for policymakers and regulators. Firstly, policymakers and regulators should pay attention to the management of financial ratios by Islamic banks in Indonesia. Secondly, they should provide support and guidance to Islamic banks to improve their operational efficiency and NPF management. Finally, they should develop policies and regulations that promote the development of Islamic banking in Indonesia.

Q: What are the contributions of this study to the existing literature?

A: This study contributes to the existing literature in several ways. Firstly, it provides new insights into the effect of financial ratios on the profitability of Islamic banks in Indonesia. Secondly, it extends the existing literature on the topic by including additional variables and using a different methodology. Finally, it provides a basis for future research in this area.