The Effect of Islamic Financing Risk and Good Corporate Governance on the Profitability of Islamic Commercial Banks in Pasuruan, Indonesia

Abstract

This study aims to examine the effect of Islamic financing risk, specifically murabahah financing risk and mudharabah financing risk, as well as good corporate governance (GCG), on the profitability of Islamic commercial banks in Indonesia. Profitability in this study is measured using return on assets (ROA) as the main indicator. The research adopts a quantitative approach utilizing secondary data in the form of annual financial statements of Islamic commercial banks for the period 2016–2020. The population consists of all Islamic commercial banks listed in the Islamic Banking Statistics (2020), with a sample of six banks selected through purposive sampling.

The data were analyzed using multiple linear regression with the assistance of Microsoft Excel and SPSS software. The findings indicate that murabahah financing risk and mudharabah financing risk partially have a negative and significant effect on profitability. In contrast, the GCG variable does not show a significant effect on profitability. However, when examined simultaneously, murabahah financing risk, mudharabah financing risk, and GCG collectively have a positive and significant impact on the profitability of Islamic commercial banks. The coefficient of determination shows that these three independent variables explain 84.3% of the variation in profitability, while the remaining 15.7% is influenced by other factors outside the research model.