The Determinants of Sharia Net Intermediation Margin: Evidence from Indonesia

Islamic Banks in Indonesia have a high intermediation margin. This indicates an inefficient financial intermediary. This is an essential and special concern to stimulate efficiency and encourage growth in distributing Islamic banking financing. The research was intended to investigate the determinants of intermediation margin in Islamic banks in Indonesia. This research employed panel data of 10 Islamic banks that utilized a dual banking system in Indonesia from 2015 to 2019. Data analysis technique used Structural Equation Model - Partial Least Square (SEM-PLS) with Warp-PLS 7.0. The results revealed that the capital adequacy ratio (CAR) had a positive and significant effect on the net intermediation margin (NIM), and Bank Size had a positive and significant effect on the net intermediation margin (NIM). This research did not significantly affect non-performing Financing (NPF), operating expenses and operating revenue on the net intermediation margin (NIM) in Islamic Banks. Academically, this research implied an expansion of knowledge of the Net Intermediation Margin of Islamic Banks. In practical terms, this research contributed to the Islamic Banking industry in formulating strategies to reduce net intermediation margin.