GOOD CORPORATE GOVERNANCE AS A MODERATOR IN THE RELATIONSHIP BETWEEN FINANCIAL RATIOS AND PROFITABILITY OF ISLAMIC COMMERCIAL BANKS IN INDONESIA

Abstract

This study aims to analyze the role of Good Corporate Governance (GCG) as a moderating variable in the relationship between financial ratios and profitability of Islamic commercial banks in Indonesia. The financial ratios used include the Financing to Deposit Ratio (FDR) and Operating Expenses to Operating Income (BOPO), while profitability is measured using Return on Assets (ROA). This research employs a quantitative approach using secondary data in the form of annual financial reports from 13 Islamic commercial banks during the period 2019–2024. Data analysis was conducted using the Partial Least Squares (SmartPLS 3) technique. The results indicate that FDR has a positive but insignificant effect on ROA. In contrast, BOPO has a negative and significant effect on ROA, indicating that operational efficiency is a key factor in enhancing the profitability of Islamic banks. Furthermore, GCG does not exhibit a significant moderating effect on the relationship between FDR and BOPO with ROA. These findings suggest that strategies to improve profitability should focus on controlling operational costs and strengthening the quality of financing, while still adhering to the principles of good governance.