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consist of murabahah (resale with mark-up) and
mudharabah (PLS scheme) financing .
5 CONCLUSION
This study has attempted to empirically investigate
the determinants of profitability in case of an Islamic
bank. Regression analysis was applied to examine
which variables are actually significant in
determining the profit of Islamic banks in Indonesia
over the periode 2010 and 2013 in quarterly basis.
This study suggests that five of eight banks
characteristics are important factors in explaining the
variation of profitability for Islamic banking
institutions in Indonesia. Among other significant
factors, Income from Service Activities (ISA),
Interest-Free Earning Assets (EA) and Total Asset
(TA) have a positive relationship with the dependent
variable, return on asset. On the other hand, Third
Party Funds (TPF) and overhead cost (OHC)
determines the Return on Assets (ROA) negatively.
Based on above result findings, three sources of
funds for Islamic banks are negatively related with
profitability indicator. This result particularly may be
utilized by the management of Islamic banks to
review and reassess the performance of these sources
of funds in order to increase their profitability level.
Furthermore, Overhead Cost (OHC) also
influence banks’profitability negatively. It prove that
the contribution of OHC to their average cost has
reducing profitability.
Total Asset (TA), on the other hand which has
positive relationship with profitability indicator. It is
also the most significant variable under our
consideration. This particular result is in line with
other major research findings, which state that Banks
of large size enjoy scale economy and achieve higher
revenue.
The ratio of interest-free earning assets to total
assets (EA) affects profitability positively. It implies
that Islamic banks are keen to rely on interest free-
earning asset to enhance their profitability since the
bulk of the earnings of banks come from interest-free
activities.
Moreover, the positive impact of increased
income from services activities on profitability
indicates that Islam banks so far has an important role
in as sources of revenue. It is contradict with
financing as the main source of income, according to
result finding has insignicant impact on
banks’profitability. It is told that Islamic banks tend
to experience a loss situation when they are offering
financing scheme particularly mudarabah schemes.
Based on the regression result, it can be concluded
that interest free earning assets is the most important
factors bank characteristic in determining of the
performance of Islamic banks in Indonesia since the
bulk of the earnings of Islamic banks come from
interest-free activities.
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