Exploring the Drivers of Non-Performing Financing among Islamic Banks in Indonesia
Abstract
This study investigates the internal factors that influence the level of Non-Performing Financing among Islamic banks in Indonesia by analyzing panel data from eight banks covering the period from the first quarter of 2017 to the second quarter of 2025. Panel data regression techniques are applied, and the Fixed Effect Model is identified as the most appropriate model based on standard model selection tests. The results show that the Capital Adequacy Ratio, Net Operating Margin, and Profit-Sharing Ratio have significant negative effects on Non-Performing Financing, indicating that stronger capital positions, higher levels of operational profitability, and more balanced profit-sharing arrangements help reduce financing risk. Conversely, the Financing-to-Deposit Ratio has a significant positive effect, suggesting that excessive expansion of financing relative to collected deposits increases the likelihood of financing becoming non-performing. Operational Efficiency Ratio and the number of branch offices do not exhibit significant effects on financing quality. Overall, the findings emphasize the importance of robust capital management, prudent liquidity strategies, and fair profit-sharing mechanisms in promoting financial stability within Islamic banks in Indonesia. These results provide valuable insights for regulators and practitioners seeking to strengthen risk management in the Islamic banking industry
Keywords: Non-Performing Financing, Islamic Banks, Capital Adequacy, Profitability, Liquidity
References
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Niswatin and Rahmat Santoso, I. (2025), “Factors affecting non-performing finance in Islamic banking in Indonesia’s agricultural sector”, Banks and Bank Systems, Vol. 20 No. 1, pp. 323–333, doi: 10.21511/bbs.20(1).2025.26.
Pujiyanty, L., Puspita, R.E. and Mochlasin, M. (2022), “MEASURING THE ROLE OF NON-PERFORMING FINANCING IN BOOSTING PROFITABILITY OF ISLAMIC COMMERCIAL BANKS”, El Dinar, Vol. 10 No. 1, pp. 1–15, doi: 10.18860/ed.v10i1.12955.
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Saadati, N. and Nurjihan, S.I. (2023), “Pengaruh BOPO, CAR dan BI Rate terhadap NPF dengan Inflasi sebagai variable Moderasi pada Bank Umum Syariah di Indonesia”, JIEIS: Journal of Islamic Economics and Islamic Studies, Vol. 1 No. 1.
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Sari, E.O., Hadiani, F. and Hazma, H. (2022), “The Influence of ROA, BOPO, CAR, and FDR on Non-Performing Financing in Full-Fledged Islamic Banks”, Indonesian Journal of Economics and Management, Vol. 3 No. 1, pp. 114–121, doi: 10.35313/ijem.v3i1.4678.
Syaidi, S., Achmad, A. and Putra, W. (2024), “Analysis of Capital Adequacy Ratio, Operating Expenses Operating Income, Non-Performing Financing, Financing to Deposit Ratio, and Net Operating Margin Return on Assets at Sharia Commercial Banks”, East African Scholars Journal of Economics, Business and Management, Vol. 7 No. 06, pp. 256–264, doi: 10.36349/easjebm.2024.v07i06.006.
Warninda, T.D., Ekaputra, I.A. and Rokhim, R. (2019), “Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently?”, Research in International Business and Finance, Vol. 49, pp. 166–175, doi: 10.1016/j.ribaf.2019.03.002.
Yuwannita, A., Mulyany, R. and Fahlevi, H. (2022), “What Causes Non-Performance Financing? Insights From Islamic Commercial Banks in Indonesia and Malaysia”, Muqtasid: Jurnal Ekonomi Dan Perbankan Syariah, Vol. 13 No. 1, pp. 77–94, doi: 10.18326/muqtasid.v13i1.77-94.
Afgani, K.F., Wiryono, S.K., Rahadi, R.A., Anggoro, Y., Boediman, A. and Indrayana, G.G. (2025), “Risk Management Practices and their Implications for Performance and Market Share in Indonesian Islamic Banks”, Journal of Economics, Finance And Management Studies, Vol. 08 No. 01, doi: 10.47191/jefms/v8-i1-31.
Alfakhirah, N.N. and Jaya, T.J. (2024), “Influence of Internal Factors and External Factors on Non Performing Financing in Islamic Commercial Banks”, Al-Intaj : Jurnal Ekonomi Dan Perbankan Syariah, Vol. 10 No. 1, p. 107, doi: 10.29300/aij.v10i1.2398.
Andersen, H. and Juelsrud, R.E. (2024), “Optimal capital adequacy ratios for banks”, Latin American Journal of Central Banking, Vol. 5 No. 2, p. 100107, doi: 10.1016/j.latcb.2023.100107.
Annizar, R.A. and Junarsin, E. (2025), “Mudharabah, musyarakah, financing risk, and performance of Islamic banks: Empirical evidence from Indonesia”, Jurnal Ekonomi & Keuangan Islam, pp. 131–142, doi: 10.20885/JEKI.vol11.iss1.art9.
Aprilianto, F. (2020), “An Analysis of Financing Scheme Effect on Non-Performing Financing Asset at Islamic Banks In Indonesia”, Falah: Jurnal Ekonomi Syariah, Vol. 5 No. 1, doi: 10.22219/jes.v5i1.11400.
Asiyah, B.N., Septiana, A. and Wahyudi, A. (2022), “Determinants of Bank Mu’amalat Indonesia’s Non-Performing Financing: Internal and External Reviews”, El-Qish: Journal of Islamic Economics, Vol. 2 No. 2, pp. 97–112, doi: 10.33830/elqish.v2i2.4157.2022.
Berns, J.P., Shahriar, A.Z.M. and Unda, L.A. (2021), “Delegated monitoring in crowdfunded microfinance: Evidence from Kiva”, Journal of Corporate Finance, Vol. 66, p. 101864, doi: 10.1016/j.jcorpfin.2020.101864.
Chong, B.S. and Liu, M.-H. (2009), “Islamic banking: Interest-free or interest-based?”, Pacific-Basin Finance Journal, Vol. 17 No. 1, pp. 125–144, doi: 10.1016/j.pacfin.2007.12.003.
Faisal, F. (2021), “PENGARUH CAPITAL ADEQUACY RATIO (CAR) DAN BIAYA OPERASIONAL PER PENDAPATAN OPERASIONAL (BOPO) TERHADAP NON PERFORMING FINANCING (NPF) DI BPRS INDONESIA PERIODE 2014-2018”, Ar-Rihlah : Jurnal Keuangan Dan Perbankan Syariah, Vol. 1 No. 1, doi: 10.35194/arps.v1i1.1305.
Fakhrunnas, F., Dwi Astuti, R. and Bekti Hendrie Anto, M. (2022), “Determinants of non-performing financing in Indonesian Islamic banks: A regional and sectoral analysis”, Banks and Bank Systems, Vol. 17 No. 4, pp. 72–86, doi: 10.21511/bbs.17(4).2022.07.
Farooq, M. and Zaheer, S. (2015), “Are Islamic Banks More Resilient During Financial Panics?”, Pacific Economic Review, Vol. 20 No. 1, pp. 101–124, doi: 10.1111/1468-0106.12096.
Gustanto, E.S., Nugroho, A.P. and Yahya, M.A. (2025), “Risk Management Strategy In Islamic Banks: An Artificial Intelligence Approach”, Journal of Principles Management and Business, Vol. 4 No. 01, pp. 33–48, doi: 10.55657/jpmb.v4i01.227.
Hani, F., Saputri, I.P. and Randyantini, V. (2025), “Capital Adequacy, Credit Risk, and Efficiency in Islamic Bank Profitability”, Involvement International Journal of Business, Vol. 2 No. 2, pp. 120–130, doi: 10.62569/iijb.v2i2.116.
Hardana, A., Syahuri Zein, A., Johanna, A. and Avinash, B. (2023), “Factors Influencing Non-Performing Financing (NPF) In Sharia Banking”, Journal Markcount Finance, Vol. 1 No. 2, pp. 87–97, doi: 10.55849/jmf.v1i2.87.
Hasan, Teng Berlianty, Merry Djoanda, Juanrico A. S. Titahelu and Mualimin Mochammad Sahid. (2025), “Reassessing Islamic Banking Supervision in Indonesia: A Contemporary Islamic and Socio-Legal Perspective on OJK’s Integrated Model”, MILRev: Metro Islamic Law Review, Vol. 4 No. 1, pp. 619–644, doi: 10.32332/milrev.v4i1.10851.
Ibrahim, M.A., Rahmawati, M., Laila, N., Zulaikha, S. and Rusydiana, A.S. (2025), “Impulse Response Function (IRF) Analysis of Non-Performing Financing (NPF) to Internal and External Economic Shocks: Evidence from an Islamic Bank in Indonesia”, International Journal of Research and Innovation in Social Science, Vol. IX No. XX, pp. 50–59, doi: 10.47772/IJRISS.2025.90200005.
Ikhsan, R. (2023), “Analisis Faktor-Faktor yang Mempengaruhi Non Performing Financing (Npf) pada Bank Syariah di Indonesia”, Jurnal Locus Penelitian Dan Pengabdian, Vol. 2 No. 2, pp. 135–144, doi: 10.58344/locus.v2i2.865.
Jappelli, T. and Pagano, M. (2002), “Information sharing, lending and defaults: Cross-country evidence”, Journal of Banking & Finance, Vol. 26 No. 10, pp. 2017–2045, doi: 10.1016/S0378-4266(01)00185-6.
Machado, M.R., Chen, D.T. and Osterrieder, J.R. (2025), “An analytical approach to credit risk assessment using machine learning models”, Decision Analytics Journal, Vol. 16, p. 100605, doi: 10.1016/j.dajour.2025.100605.
Moutinho, L. and Phillips, P.A. (2002), “The impact of strategic planning on the competitiveness, performance and effectiveness of bank branches: a neural network analysis”, International Journal of Bank Marketing, Vol. 20 No. 3, pp. 102–110, doi: 10.1108/02652320210424188.
Muhammad, R., Suluki, A. and Nugraheni, P. (2020), “Internal factors and non-performing financing in Indonesian Islamic rural banks”, edited by McMillan, D.Cogent Business & Management, Vol. 7 No. 1, p. 1823583, doi: 10.1080/23311975.2020.1823583.
Nengsih, N. (2015), “Peran Perbankan Syariah Dalam Mengimplementasikan Keuangan Inklusif di Indonesia”, ETIKONOMI, doi: 10.15408/etk.v14i2.2272.
Niswatin and Rahmat Santoso, I. (2025), “Factors affecting non-performing finance in Islamic banking in Indonesia’s agricultural sector”, Banks and Bank Systems, Vol. 20 No. 1, pp. 323–333, doi: 10.21511/bbs.20(1).2025.26.
Pujiyanty, L., Puspita, R.E. and Mochlasin, M. (2022), “MEASURING THE ROLE OF NON-PERFORMING FINANCING IN BOOSTING PROFITABILITY OF ISLAMIC COMMERCIAL BANKS”, El Dinar, Vol. 10 No. 1, pp. 1–15, doi: 10.18860/ed.v10i1.12955.
Putri, M.D.S. (2021), “Macroeconomics Factors on Non-performing Financing of The Islamic Commercial Banks”, Efficient: Indonesian Journal of Development Economics, Vol. 4 No. 3, pp. 1376–1389, doi: 10.15294/efficient.v4i3.47430.
Saadati, N. and Nurjihan, S.I. (2023), “Pengaruh BOPO, CAR dan BI Rate terhadap NPF dengan Inflasi sebagai variable Moderasi pada Bank Umum Syariah di Indonesia”, JIEIS: Journal of Islamic Economics and Islamic Studies, Vol. 1 No. 1.
Sabihah, K., Mutamimah, M., Saputri, P.L., Rusdi, D., Setapa, M. and Abarahan, A. (2025), “THE ROLE OF ISLAMIC CORPORATE GOVERNANCE IN REDUCING SHARIA BANK FINANCING RISK IN INDONESIA”, Jurnal Ekonomi Dan Bisnis Islam (Journal of Islamic Economics and Business), Vol. 11 No. 1, doi: 10.20473/jebis.v11i1.64146.
Safitri, M., Ismawanto, T. and Kusno, H.S. (2020), “Pengaruh FDR Dan BOPO Terhadap NPF Pada Bank Syariah Anak Perusahaan BUMN”, Jurnal Bisnis Dan Kewirausahaan, Vol. 16 No. 3, pp. 201–207, doi: 10.31940/jbk.v16i3.2192.
Saleem, A., Daragmeh, A., Zahid, R.M.A. and Sági, J. (2023), “Financial intermediation through risk sharing vs non-risk sharing contracts, role of credit risk, and sustainable production: evidence from leading countries in Islamic finance”, Environment, Development and Sustainability, Vol. 26 No. 5, pp. 11311–11341, doi: 10.1007/s10668-023-03298-7.
Salwatun Aslamia, Ahmed Fatir Sadikin, Muhammad Agil Saputra, Yeni Yulia Kusuma, Tiana Nataza and Rangga Okrio Saputra. (2023), “REGULATION, SUPERVISION, AND IMPLEMENTATION OF SHARIA PRINCIPLES IN BANKING BY OJK (ANALYSIS OF LEGAL ASPECTS AND CHALLENGES)”, Indonesian Journal of Multidisciplinary Sciences (IJoMS), Vol. 2 No. 2, pp. 264–274, doi: 10.59066/ijoms.v2i2.344.
Sari, E.O., Hadiani, F. and Hazma, H. (2022), “The Influence of ROA, BOPO, CAR, and FDR on Non-Performing Financing in Full-Fledged Islamic Banks”, Indonesian Journal of Economics and Management, Vol. 3 No. 1, pp. 114–121, doi: 10.35313/ijem.v3i1.4678.
Syaidi, S., Achmad, A. and Putra, W. (2024), “Analysis of Capital Adequacy Ratio, Operating Expenses Operating Income, Non-Performing Financing, Financing to Deposit Ratio, and Net Operating Margin Return on Assets at Sharia Commercial Banks”, East African Scholars Journal of Economics, Business and Management, Vol. 7 No. 06, pp. 256–264, doi: 10.36349/easjebm.2024.v07i06.006.
Warninda, T.D., Ekaputra, I.A. and Rokhim, R. (2019), “Do Mudarabah and Musharakah financing impact Islamic Bank credit risk differently?”, Research in International Business and Finance, Vol. 49, pp. 166–175, doi: 10.1016/j.ribaf.2019.03.002.
Yuwannita, A., Mulyany, R. and Fahlevi, H. (2022), “What Causes Non-Performance Financing? Insights From Islamic Commercial Banks in Indonesia and Malaysia”, Muqtasid: Jurnal Ekonomi Dan Perbankan Syariah, Vol. 13 No. 1, pp. 77–94, doi: 10.18326/muqtasid.v13i1.77-94.
Published
2025-12-01
How to Cite
Amaroh, S. (2025). Exploring the Drivers of Non-Performing Financing among Islamic Banks in Indonesia. Annual International Conference on Islamic Economics and Business (AICIEB), 5(-), 106-113. https://doi.org/https://doi.org/10.18326/aicieb.v5i-.767
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