Do stability and size affect the profitability of Islamic rural bank in Indonesia?

Heri Sudarsono (Department of Economics, Faculty of Business and Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia)
Fiqih Afriadi (Department of Accounting, Faculty of Economics, Universitas Pamulang, Banten, Indonesia)
Siti Aisiyah Suciningtias (Department of Management, Faculty of Economics, Universitas Islam Sultan Agung, Semarang, Indonesia)

Jurnal Ekonomi & Keuangan Islam
Volume 7 No. 2, July 2021

Purpose – This study aims to analyze the effect of stability, size, financial performance and macroeconomic variables on the profitability of Islamic Rural Banks (BPRS) in Indonesia.Methodology – This study uses panel data consisting of 82 BPRS from December 2012 to December 2018. This study uses a dynamic model using GMM (General Method of Moments) developed by Arellano & Bover (1995) and Blundell & Bond (1998). GMM is used to describe the actual conditions in the analysis of profitability of Islamic Rural Banks.Findings – The findings of this study indicate that the stability and size of the BPRS have a negative effect on the level of ROA and ROE. Further, BAC has a positive effect on ROA but it has a negative effect on ROE. While the deposit structure (DS) is found to have a positive effect on ROA and ROE, FDRand the total deposit (DAR) is found to have a positive effect on both ROA and ROE. Meanwhile, the capital structure does not show a significant value on ROA. On the other hand, economic growth (GDP) and inflation (INF) do not show a significant relationship to ROA, but inflation is positively related to ROE.Originality – This study is to determine the effect of the stability and the size of BPRS on its profitability. This study uses 6 models to obtain a consistent variation of variables in influencing profitability.