THE EFFECT OF LIQUIDITY AND PROFIT SHARING ON THE FINANCIAL PERFORMANCE (ROA) OF SHARIA BANKS

Abstract

This study aims to analyze the effect liquidity and profit-sharing financing on the financial performance of Islamic banks as measured by Return on Assets (ROA). A quantitative method was employed using multiple linear regression analysis. Secondary data were obtained from the financial statements of Islamic banks and analyzed through classical assumption tests, regression analysis, and t and F tests. The results show that liquidity measured by the quick ratio has a negative and significant effect on ROA, indicating that higher liquidity tends to reduce the bank’s profitability. Profit-sharing financing also demonstrates a negative and significant effect on ROA, suggesting that the increase in profit-sharing financing has not yet contributed optimally to profitability. These findings highlight the need for Islamic banks to manage their funding structure and financing distribution more efficiently to enhance financial performance. This study contributes to the existing literature regarding key determinants of profitability in Islamic banking in Indonesia.