The influence of financing contract types on credit risk, financing return levels, efficiency, and profitability of islamic banks in indonesia

Abstract

This study aims to examine the impact of different types of financing contracts on the credit risk, financing return rates, financing cost efficiency, and profitability of Islamic banks in Indonesia. Additionally, it investigates the effects of credit risk, financing return rates, and financing cost efficiency on the profitability of Islamic banks. This research employs a quantitative approach using statistical analysis to explore both direct and indirect relationships among the variables. The results indicate no strong evidence that the type of financing contract directly affects credit risk, financing return rates, financing cost efficiency, or profitability. Furthermore, the type of contract does not significantly influence profitability through the mediating effects of credit risk, financing return rates, or cost efficiency. The only significant finding is a negative relationship between financing return rates and profitability, suggesting that the level of financing return plays a more critical role in determining the profitability of Islamic banks than the type of financing contract used. Although certain pathways, such as the indirect effect of credit risk on profitability, show potential influence with large coefficients, they are not statistically significant and therefore lack robust causal support.