<![CDATA[The development of Islamic banking in Indonesia had been very rapid in recent years. However, the market share of Islamic banking was still far below expectations. Previous theoretical studies had stated that the competitive environment between conventional banks and Islamic banks, greatly affected the performance of Islamic banks. In this study, we tried to understand how the influence of conventional bank policies which was described by the savings interest rate (SB) towards the profits of Islamic banks described by Return on Assets (ROA). The analysis method used was Vector Autoregressive (VAR) with additional analysis of Impulse Response Function (IRF) and Variance Decomposition Analysis (VDC). The results of the analysis using VAR stated that there was a significant negative effect on Islamic bank profits (ROA) if there was a shock to conventional bank interest rates (SB). This condition was in line with the results of research by Haron and Ahmad (2000); Haron (2004), and Zainol and Kassim (2012) which suggests that if the interest rate for conventional bank savings increases, Islamic bank customers would switch to conventional banks which were considered to provide greater profits, so that the bank’s profits will increase, so that the profit of Islamic banks had decreased. These results indicated that not all Islamic bank consumers were loyal consumers, Islamic banking was required to act rationally, namely by setting a competitive profit sharing rate against conventional bank interest rates.]]>
