Islamic Rural Bank Profitability : Evidence from Indonesia

Islamic Rural Bank in Indonesia has experienced an increase of total asset and total financing but showed a decrease of profitability. Analysis of profitability determinants will contribute in increasing Indonesian Islamic Rural Bank profitability. This research aims to analyze Islamic Rural Bank profitability determinants in the short and long run. It applies dynamic model of Error Correction Model (ECM) to find several internal and external factors that influence Islamic Rural Bank profitability in the short and long run. The results of this research can show variables that have a positive and negative effect in the short and long run. Mudharabah Time Deposit becomes dominant variable in affecting Islamic Rural Bank profitability in the short run and has negative effect. Non Performing Financing becomes the dominant variable in the long run and also has negative effect. The dominant variables in the short and long run both have negative effects. It can show why Islamic Rural Bank has experienced a decrease in profitability.