Determinants of Islamic Commercial Bank Financing in Indonesia: Financial Performance and Inflation (2015–2023)

Objective: This study aims to examine the effects of Capital Adequacy Ratio (CAR), Return on Assets (ROA), Third-Party Funds (DPK), Non-Performing Financing (NPF), and inflation on financing disbursed by Islamic Commercial Banks (BUS) in Indonesia during 2015–2023. Research Design & Methods: A quantitative approach was employed using secondary quarterly panel data from all 11 Islamic Commercial Banks operating in Indonesia. Data were obtained from the Financial Services Authority (OJK) and Bank Indonesia, comprising 396 bank-quarter observations. After excluding 38 observations with negative ROA that could not be log-transformed, 358 observations were analyzed. Panel regression was conducted, with the Chow and Hausman tests indicating the Fixed Effect Model (FEM) as the most appropriate specification. Findings: The results indicate that CAR, DPK, and NPF have positive and significant effects on financing, whereas ROA and inflation have negative and significant effects. Simultaneously, all five variables significantly affect financing, with an adjusted R² of 34.86%. The positive relationship between NPF and financing suggests a financing-growth-driven risk exposure pattern rather than conventional risk-averse lending behavior. Contributions: This study extends previous research by employing a full-population quarterly panel covering all Islamic Commercial Banks in Indonesia over a relatively long period, including the post-merger period. It also provides a theoretical interpretation of the counterintuitive positive relationship between NPF and financing and offers a transparent methodological framework for future panel-data studies of Islamic banking. Novelty: This study uniquely combines full-population quarterly data from all 11 Islamic Commercial Banks during 2015–2023, including the post-merger period, while providing a novel financing-growth-driven interpretation of the positive NPF–financing relationship.