The Effect of Financing Decision and Risk on the Performance of Islamic Bank

Abstract

The purpose of this research is to examine the effect of financing decision and risk on the performance of Islamic bank. Performance of Islamic bank is measured by return on equity (ROE) and return on assets (ROA). Financing decision consists of murabaha financing, mudaraba financing, and musaraka financing. Whereas, risks are measured by non performing finance(NPF) and financing to deposit ratio(FDR). The population which taken in this research is 8 Islamic banks. The analytical tool which used is multiple regression.The result of research showed that Non Performing Finance (NPF ) does not give any influence on the performance of Islamic banks which is measured by ROA and ROE. Risk of financing which is measured by the Financing to Deposit Ratio (FDR) does give influence on the ROA, but does not influence on ROE. Murabaha financing which is based on trading does give positive influence on the performance of Islamic banks. Musharaka financing which is based on profit sharing give negative influence on the performance of Islamicbank, while mudaraba financing does not give any influence on the performance of Islamic banks.