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Journal : Majapahit Journal of Islamic Finance and Management

The Role of Islamic Bank Capital Structure and Performance in Promoting Price Stability in Indonesia Agustina, Maulidar; Majid, M. Shabri Abd.; Zulkifli, Zulkifli; Pranata, Eka Octavian
Majapahit Journal of Islamic Finance and Management Vol. 5 No. 2 (2025): Islamic Finance and Management
Publisher : Department of Sharia Economics Institut Pesantren KH. Abdul Chalim Mojokerto

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.31538/mjifm.v5i2.524

Abstract

This study examines the impact of capital structure and financial performance of Islamic banks on price stability in Indonesia using an Autoregressive Distributed Lag (ARDL) model with quarterly data from 2014 to 2024. Key variables include the Capital Adequacy Ratio, Total Regulatory Capital, Tier 1 Capital, Risk-Weighted Assets, Net Income, and the Consumer Price Index. Long-term findings reveal that robust capital indicators enhance price stability by strengthening banks' resilience and credit capacity. In contrast, Net Income mitigates inflationary pressure in the long run but intensifies it in the short term. The error correction term confirms rapid adjustment toward equilibrium after short-term shocks. These results underscore the critical role of sound capital and profitability in reinforcing Islamic banks’ contribution to Indonesia’s monetary policy, offering valuable insights for policymakers and regulators in promoting macroeconomic stability.