Efficiency and Profitability of Islamic Banks in Indonesia

This paper investigates the efficiency and profitability as well as the relationship between both variables in Indonesian Islamic banks during the period from 2013 to 2014. This research also relates the profitability with the important variables i.e., capital adequacy ratio (CAR), net interest margin (NIM), nonperforming financing (NPF), size and operational costs. Return on asset (ROA) is used as a proxy for profitability and efficiency is estimated data envelopment analysis (DEA). The data is sourced from Central Bank of Indonesia. This research uses three stages of estimation: (i) examining of technical efficiency of Islamic Banks using Data Envelopment Analysis (DEA), (ii) examining effect of independent variables on dependent variable using multiple regression analysis, and (iii) examining efficiency in the relationship between independent variables and dependent variable using Moderated Regression Analysis (MRA). The results find that only Bank Victoria Syariah is efficient during the period from 2013 to 2014. Furthermore, only CAR, NIM, SIZE and operational costs affect the significantly the profitability. In addition, the efficiency only moderates the effects of CAR, NIM, NPF and SIZE on ROA.