Abstract :
This study concerns with the recent government policy on Islamic banking in term
of Capital Adequacy Ratio, Loan to Deposit Ratio/Financing to Deposit Ratio.
BOPO ratio, and Non Performing Financing. It is especially aims at analyzing: 1)
the correlation between Capital Adequacy Ratio, Loan to Deposit
Ratio/Financing to Deposit Ratio, BOPO ratio, and Non Performing Financing
on one side and bank profitability in terms ROE on the other, 2) the dominant
variable(s) which influences profitability. The unit of analysis in this case is
common Islamic bank in Indonesia during the period of 2005-2007. Descriptive
as well as regression analyses are employed in this study using a five-percent
confidence level. The result reveal that first, Capital Adequacy Ratio, Loan to
Deposit Ratio/Financing to Deposit Ratio, BOPO ratio, and Non Performing
Financing proved to affect ROE significantly. Second, Loan to Deposit
Ratio/Financing to Deposit Ratio and Non Performing Financing does not have
strong correlation with ROE.