Estimating the Profitability of Islamic Banking: Evidence from Bank Muamalat Indonesia

Abstract

The primary goal of this paper is to empirically analyze the performance of Bank Muamalat Indonesia (BMI) in terms of its ROA. Utilizing regression analysis, the paper estimates the internal determinants; taken from the bank financial structure as well as its external determinant. It is found that profit has been dominantly generated from financing activities. On the other hand, service activities have not contributed significantly to the profitability of BMI. The paper also indicates that, during 1996-2001, BMI’s portfolio has been greatly biased towards short-term based financing. The result of the paper also confirms the hypothesis of the positive relationship between inflation and profitability measure.