| Summary: | This paper examines the determinants of the non-performing financing
(NPF) ratio and analyzes which indicators are the most influential on NPF ratio
of Indonesia sharia bank. This paper finds that the level of NPF ratio can be
attributed to both macroeconomic conditions and banks�specific factors in 10
Indonesia sharia banks during the third quarter of 2010 to the third quarter of
2013. The independent variables used in this study are Return on Equity (ROE)
and Capital Adequacy Ratio (CAR) as the bank-specific indicators and inflation
rate as the macroeconomic indicator.
This paper uses two methods of panel data regression which are the Fully
Modified Least Squares (FMOLS) where the coefficient describes a long-term
relationship and the Ordinary Least Squares (OLS).
Both method results show that there is a negative and significant
relationship between ROE and CAR, while the panel FMOLS method shows that
the inflation rate has no significant effect on the NPF ratio.The results also
indicate that based on those two methods, bank-specific factors such as ROE and
CAR has stronger effect on the NPF ratio than the macroeconomic indicator
which is inflation rate.
Keyword: non-performing financing, Indonesia sharia banking, panel fullymodified
ordinary least squares, panel ordinary least squares
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