<![CDATA[This paper analyzes the influence of market power on the profitability of Islamic rural banks (IRBs) in Indonesia, with ownership and location incorporated as moderating variables and several control variables included in the empirical model. Profitability is measured by return on assets (ROA), while market power is proxied by the Lerner Index. The control variables consist of bank-specific internal factors and macroeconomic conditions that may also affect bank profitability. The study examines 154 Islamic rural banks over the period from 2015 to 2023 using quarterly observations and an unbalanced panel data structure. To account for the dynamic characteristics of bank profitability and potential endogeneity issues, this study employs dynamic panel data regression estimated using the system generalized method of moments (system GMM). The empirical results show that market power is an important variable influencing the profitability of IRBs. Another important finding indicates that the effect of market power on profitability becomes stronger when IRBs are owned by local governments. In contrast, the influence of market power on profitability decreases for IRBs located on the island of Java. These findings imply that healthy market power needs to be supported by managerial efficiency in order to improve the competitiveness and profitability of IRBs. In addition, considering the importance of geographical differences, the Financial Services Authority (OJK) should develop policies for IRBs through a spatially differentiated policy approach that takes into account variations in location.]]>
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