<![CDATA[Abstract: This study employs a descriptive-analytical model to investigate the paradoxical relationship between Capital Adequacy Ratio (CAR), Non-Performing Financing (NPF), and Return on Assets (ROA) at Indonesia’s pioneering Islamic bank, Bank Muamalat (2016–2023). Using quarterly time-series data (32 observations), we apply quantitative causality analysis via SPSS 27, incorporating agency theory to contextualize managerial risk-return trade-offs. Results reveal CAR averaged 18.07% (criteria: very healthy), NPF 4.04% (healthy), yet ROA remained critically low at 0.11% (unhealthy), signaling inefficiency in asset utilization. Crucially, multiple regression demonstrates CAR and NPF significantly reduce ROA (CAR: β = -0.007, *p* = 0.026; NPF: β = -0.045, *p* = 0.010), contradicting conventional banking theory where higher capital buffers typically enhance profitability. The F-test confirms joint significance (*p* = 0.033), though CAR and NPF explain only 15.5% of ROA variance (Adjusted R² = 0.155), implying dominant external influences—macroeconomic volatility, COVID-19 impacts, or operational inefficiencies—drive 84.5% of profitability fluctuations. These findings challenge agency theory assumptions in Islamic banking, suggesting excessive conservatism in capital management undermines profit generation. We recommend recalibrating CAR thresholds and strengthening financing risk controls to align stability with sustainable profitability.Abstrak: Penelitian ini bertujuan untuk menganalisis secara mendalam hubungan paradoks antara Capital Adequacy Ratio (CAR), Non-Performing Financing (NPF), dan Return on Assets (ROA) pada bank syariah pionir Indonesia, Bank Muamalat (2016–2023). Dengan data deret waktu triwulanan (32 observasi), kami menerapkan analisis kausalitas kuantitatif melalui SPSS 27, mengintegrasikan agency theory untuk mengkontekstualisasikan trade-off risiko-imbal hasil manajerial. Hasil menunjukkan CAR rata-rata 18,07% (kriteria: sangat sehat), NPF 4,04% (sehat), namun ROA tetap kritis di 0,11% (tidak sehat), mengindikasikan inefisiensi pemanfaatan aset. Secara krusial, regresi berganda membuktikan CAR dan NPF secara signifikan menurunkan ROA (CAR: β = -0,007, *p* = 0,026; NPF: β = -0,045, *p* = 0,010), bertentangan dengan teori perbankan konvensional di mana capital buffer tinggi biasanya meningkatkan profitabilitas. Uji-F mengonfirmasi signifikansi bersama (*p* = 0,033), meskipun CAR dan NPF hanya menjelaskan 15,5% varians ROA (Adjusted R² = 0,155), menyiratkan pengaruh eksternal dominan—volatilitas makroekonomi, dampak COVID-19, atau inefisiensi operasional—mendorong 84,5% fluktuasi profitabilitas. Temuan ini menantang asumsi agency theory dalam perbankan syariah, menunjukkan konservatisme berlebihan dalam manajemen modal merusak pembentukan laba. Kami merekomendasikan penyesuaian ambang batas CAR dan penguatan kontrol risiko pembiayaan untuk menyelaraskan stabilitas dengan profitabilitas berkelanjutan. ]]>
