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All Journal Islamic Economics and finance in Focus (IEFF)
Asshiddiq, Muhammad Azzam Nazhmi
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Religion Economics, Econometrics & Finance Social Sciences

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The Effect of Islamic Financing Composition on Sharia Bank Profitability in Indonesia Asshiddiq, Muhammad Azzam Nazhmi; Galuh, Ajeng Kartika
Islamic Economics and finance in Focus Vol. 5 No. 4 (2026)
Publisher : Fakultas Ekonomi dan Bisnis Universitas Brawijaya

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.21776/

Abstract

This study examines the effect of profit-sharing, sale-based, and lease-based financing on the profitability of Sharia Commercial Banks (SCBs) in Indonesia over the 2015–2024 period. Profitability is measured through Return on Assets (ROA), while Financing to Deposit Ratio (FDR) and Non-Performing Financing (NPF) are included as control variables. Using aggregate monthly data published by the Financial Services Authority (OJK) in the Islamic Banking Statistics, the study applies a Vector Error Correction Model (VECM) to capture both short-run and long-run dynamics. The results show that profit-sharing financing has a positive and significant effect on ROA in both the short and long run. Sale-based financing shows no significant short-run effect but exerts a negative and significant long-run effect, while lease-based financing has no significant effect in either horizon. FDR and NPF are both negatively and significantly associated with ROA in the long run. These findings suggest that SCBs should reduce their heavy reliance on sale-based contracts and expand profit-sharing financing to strengthen profitability on a more sustainable basis, while continuously monitoring financing quality and liquidity.  
Co-Authors Ajeng Kartika Galuh