The analysis of financial performance in Islamic banks: A comparative study between Turkey and Indonesia

In order to reach higher market share, Islamic banking should be ready to compete with conventional banking. In addition, Islamic banking should show that the Islamic banking activity is totally different with conventional banking. So, showing good performance in Islamic banking is very important. If Islamic banking shows good performances, the customers or investors are interested to use Islamic banking products and services. The most common measurement to evaluate the performance is financial performance. The purpose of this study is to analyze and compare financial performance of Islamic banking in Turkey and Indonesia. The type of this study is quantitative research. To analyze and compare the financial performance of Islamic banking in Turkey and Indonesia, this study uses panel data analysis and maqāṣid al-sharīʿah index (MI). In the panel data analysis, this study uses return on assets (ROA) as dependent variable. Meanwhile, the independent variables used in this study are bank size, loan ratio, capital ratio, operating expense ratio, bank age, and inflation. In the calculation of MI, there are five dimensions used, which are faith, soul, intellect, posterity, and wealth. Data are collected from Islamic banks' annual reports. Furthermore, this study uses 5 Islamic banks in Turkey and 11 Islamic banks in Indonesia as sample. The results of study show that bank size, loan ratio, bank age and inflation influence ROA significantly in Islamic banks in Turkey. Meanwhile, bank size and capital ratio influence ROA significantly in Islamic banks in Indonesia. In addition, all independent variables influence ROA significantly in Islamic banking in both countries. Based on MI calculation, in the average MI of Islamic banking in Indonesia is higher than the average MI of Islamic banking in Turkey. However, the average of MI in both countries is under 20%. It indicates that Islamic banks need to boost and improve their performance based on maqāṣid al-sharīʿah to create big impact on socio-economic development. Keywords: Financial performance, Islamic banking, return on assets (ROA), panel data analysis, maqāṣid al-sharīʿah index (MI).