Islamic banking in Indonesia faces digital and profitability challenges

Research into the Indonesian Islamic banking sector highlights both the operational challenges and the financial determinants affecting sharia-compliant institutions.

Regarding environmental and digital shifts, the implementation of green banking through paperless and cashless services faces hurdles such as high initial technology infrastructure costs and regulatory conflicts between national guidelines and regional rules, such as the Qanun Lembaga Keuangan Syariah. However, digital transformation offers opportunities to reduce operational costs, accommodate younger digital-native demographics, and improve institutional transparency.

In terms of financial performance, studies analyzing profitability (ROA) from 2018 to 2024 indicate that non-performing financing (NPF) and operating expenses (BOPO) have a significant negative impact on profitability. Conversely, net operating margin (NOM) shows a positive correlation with profitability. The research also notes that profitability in both standalone and unit systems is influenced by previous periods' performance, suggesting a level of persistence in the sector's financial behavior.