Analysis of the Effect of Capital Adequacy (CAR) and Intermediation Liquidity (FDR) on Net Operating Margin (NOM) Performance in Indonesian Islamic Banking

Abstract

This study examines the relationship between Capital Adequacy Ratio (CAR), Financing to Deposit Ratio (FDR), and Net Operating Margin (NOM) in Indonesian Islamic Commercial Banks using monthly data from January 2022 to December 2024. The study employs a quantitative explanatory approach with 36 observations obtained from the Sharia Banking Statistics published by the Financial Services Authority (OJK). The analysis includes descriptive statistics, Ordinary Least Squares regression, diagnostic tests, stationarity testing, cointegration analysis, and a first-difference regression with calendar-month effects and Newey–West HAC standard errors. The benchmark regression indicated that CAR had a positive and significant relationship with NOM, while FDR was negative and insignificant. However, the variables were non-stationary in levels and did not exhibit significant cointegration. After first differencing and applying robust estimation, both CAR and FDR showed negative but statistically insignificant coefficients. The findings indicate that short-run changes in capital adequacy and financing intermediation do not independently explain changes in NOM. Operating margin performance is therefore likely influenced by broader financial and operational factors beyond CAR and FDR.