Capital Adequacy Ratio and Its Influencing Factors on the Islamic Banking in Indonesia

Bank is one of the most decisive financial intermediary of a country's economy. Country that in the economies has healthy banking industries will have an impact on all the activity and stability of the economy. The purpose of this study is to investigate the determinants of the capital adequacy of Islamic banks in Indonesia by using panel data of eleven Islamic Banks from 2012 to 2016. This study uses secondary financial data that were analyzed using multiple linear regression model to the capital adequacy of banks (Capital Adequacy Ratio / CAR) as the dependent variable, and profitability (ROA, ROE, NIM) and Liquidity (FDR) as the independent variables. The findings of this study showedpositive correlation between the financial performance of capital adequacy and liquidity. As a result, this study provides more insight into the determinants that affect the capital adequacy of Islamic Banks in Indonesia.


A. INTRODUCTION
Shariah-based banking established by the Al-Quran (Surah Al-Baqarah (2); 275) that states "... .Allah hath permitted trade and forbidden usury", so that bank that in their activities renounce usury was formed based on guidance of Koran and Islam.
The first Islamic bank in Indonesia is Muamalat Bank. Its establishment is pioneered by the Indonesian Ulama Council and officially operational in 1992.The legal basis for this bank operations using sharia system, then simply accommodated in one paragraph of the "bank sharing system" to the Constitution Law No.7/1992. In 1998, improvements in Constitution Law No.7/1992into Constitution Law No.10/1998, explains that there are two banking system in Indonesia (dual banking system), the conventional banking system and Islamic banking system.
The law received acceptance from the banking community, which is marked by the establishment of Islamic business units in conventional banking and then the establishment of Islamic banks. The development of Islamic Banks, Islamic Business Unit and Islamic Rural Banks showed in Table 1; Islamic banking development that exist now supported by advanced information technology that have been side by side with the development of the existing conventional banks, and according to Tulus Suryanto (2016) technology information is indispensable to improve the performance.
The characteristic of Islamic banking system that operates on the principle of profit sharing system, provides an alternative banking system that is mutually beneficial for the community and the bank. Given the importance of the function and role of Islamic banking in Indonesia, the Islamic banks need to improve the 164 performance, particularly in the problem of capital adequacy, in order to create banks with Islamic principles that healthy and efficient.
Islamic bank establishment must be supported by a strong capital. Bank capital is money invested by the owner which intended to finance the bank's business activities in addition to meet the regulations set by the monetary authority. The size of the capital investment of the owners greatly affects the ability of banks to carry out operations. Capital aspect is an assessment of the capital adequacy level of banks to support the risks occurring and proxied by the Capital Adequacy Ratio (CAR). Besides, the capital for the banking aspect is important because large capital strength needed in the global competition. The development of the Islamic banking industry is in line with the domestic and global economic developments which can be seen in Table 2. The level of national banking capital increased, in 2013 the ratio of Capital Adequacy Ratio (CAR) of 14.44% increased to 16.10% in 2014 and in 2015 decreased to 15.02%. Overall the CAR is still above 8% in accordance with the minimum requirement. This shows Indonesian Islamic banking has enough endurance to anticipate potential risks.
The factors that are affecting the Capital Adequacy Ratio (CAR) includeprofitability, liquidity, and asset growth of the banking system. Profitability is the ratio that measures the level of business efficiency. Profitability ratios used are ROA, ROE and NIM; ROA for example, can take into account the ability of bank management in gaining profit / income (Kashmir, 2010: 279).Meanwhile liquidity also affects the level of available capital adequacy. Liquidity is a ratio to measure the bank's ability to meet its short term obligations when billed. The liquidity ratio used is Financing Deposit Ratio (FDR). If the growth in the number of loans is greater than the growth in the number of funds raised then the value of Capital Adequacy Ratio And Its Influencing Factors On The Islamic Banking In Indonesia (Yolanda) https://ejournal.radenintan.ac.id/index.php/ikonomika 165 E-mail:ikonomika_submission@radenintan.ac.id the bank FDR will be higher. Increasing value of FDR due to growth in the number of loans is higher than the growth in the number of funds rose, so that it will cause a decline in the value of bank's CAR. While Loan to Deposit Ratio (LDR) or Financial to Deposit Ratio (FDR) is a ratio to measure the success / effectivity of bank in its function as an intermediary, according to Bank Indonesia Circular Letter No. 15/41/Dkmp Dated 1 October 2013 that the lower limit of the bank LDR set at 78% (seventy eight percent) and the upper limit is set at 92%. Higher LDR value shows that the bank has managed to (effective to) do as intermediaries.
Other factors affecting the banking capital adequacy is the Asset Growth. Asset growth shows the growth of assets in which assets are assets used for operating assets of the company. Sartono (2009: 248) states that the faster growth of the company, the greater need for funds to finance the expansion. The faster a company grows, so the larger the asset is expected in order to gain greater operational results generated by the company. While Cashmere (2014) said capital aspect using CAR, liquidity aspect using loan to deposit ratio (LDR), income aspect using return on assets (ROA), net interest margin (NIM) and operational cost to operating income (BOPO) assessed by using financial ratios so as to assess the financial condition of banking companies.
Factors that affect the capital adequacy (Capital Adequacy Ratio / CAR) are widely studied, among them by: 1. Fathiyah Andini and Irni Yunita stated that ROA partially have a significant positive influence on CAR, and NPL and ROE and partially have a significant negative effect on CAR; 2. Nuviyanti and Achmad Herlanto Anggono (2014), BOPO, LDR and return on equity ratio (ROE) have significant negative effect on the capital adequacy ratio (CAR) and Non-Performing Loan (NPL) ratio and return on assets (ROA) ratio has a positive effect; 3. Bateni (2006), stated return on equity is a profitability ratio that indicates the ratio between profit after tax by the bank's core capital, and Lukman Syamsuddin (2009) stated Return on Equity is a measurement of earnings (income) that is available for the owners of the company (both common shareholders and preferred shareholders) on the capital they have invested in the company, so that ROE can be used to measure a company's ability to generate earnings to capitalize the equity that has been invested by shareholders.
In accordance to Bank of Indonesia Circular Letter No. 13/30/DPNP December 16, 2011, Return onEquity (ROE) can be formulated as follows:

Net Interest Margin (NIM)
The main activity of banks is raise community funds and then funnels back to the community. Such activities result in costs and operating income/interest. According to Brock and Suarez (2000), NIM is the difference between the interest income of banks and costs as a percentage of interest earning assets. While Mandos, J and Guevara, J (2004), said NIM is the difference between financial income and financial costs in relation to total assets. In accordance to Bank of Indonesia Circular Letter No. 13/30/DPNP December 16, 2011, Net Operating Margin (NIM) can be formulated as follows: (2005), LDR states how much the bank's ability to repay depositors withdrawal of funds committed by relying on loans as a source of such liquidity. With that, liquidity of a bank means that the bank has sufficient financial resources available to meet all liabilities (Siamat, 2005 6. Framework Based on the formulation of the problem described above regarding the variables that affect the Capital Adequacy Ratio (CAR) of the Islamic Bank in Jakarta, Indonesia within the period of 2012-2016, the theoretical framework presented in this study are described in Figure 1: C. RESEARCH METHODS The purpose of this study was to determine the factors that affect the capital adequacy of Islamic Banks in Indonesia and its influence on financial performance and liquidity. Secondary data was collected from financial statement data of 11 Islamic Banks in Indonesia.   Based on the coefficient determination test (R 2 ), the Adjusted R 2 values obtained by0.883222, which shows that 88.32 percent of the CAR variation can be explained byfour (4) independent variables variation, namely ROA, ROE, FDR and NIM. While the rest of 11.68 percent is explained by other variables that not examined.

E. CONCLUSION
This study sought to investigate the relationship between earnings (ROA, ROE, NIM) and Liquidity (FDR) of commercialIslamic banking in Indonesia with a capital adequacy ratio (CAR). Secondary data comes from the annual report of Islamic banks that have been published. The study covers five years from 2012 to 2016 with a total of 55 observations. Three (3) variables are used to represent financial performance, while one (1) variable representing Liquidity.
Regression analysis showed various signs of relationship between variables that slightly different from the theories, for example, based on the theory FDR should be associated with CAR in negative but through this research, the relationship between FDR and CAR is positive. It can be concluded that other factors will also have an impact on commercial Islamic Banks in determining their CAR.
In the further study, additional variables must be tested in order to obtain more comprehensive results. This research is expected to provide more referrals to researchers, especially in the study of Islamic banking and also provide strong evidence to investors and banking institutions about the importance of securing sufficient capital to mitigate banking risks.