Sustainable Business in Islamic Banking: Challenges, Opportunities, and Determinants of Profitability

Abstract

This study examines the challenges and opportunities for sustainable business in Islamic banking by investigating the effect of firm age, financing to deposit ratio (FDR), operational efficiency (BOPO), and Islamicity performance on profitability. The research question explores how these internal and Sharia-compliance indicators drive the rentability of Islamic banks in Indonesia. Using panel data from Islamic commercial banks over 2015–2023, the study applies multiple regression analysis to evaluate both partial and simultaneous effects. Empirical results reveal that firm age and FDR have a positive and significant effect on profitability, BOPO has a significant negative effect, while Islamicity performance shows no significant impact. These findings suggest that operational efficiency and financial structure remain primary determinants of sustainable profit growth, whereas Sharia compliance indicators may require longer-term integration to influence financial outcomes. The study contributes to the literature by highlighting how Islamic banks can navigate sustainability challenges and opportunities to enhance profitability.