Purpose: The main purpose of this research is to analyse factors influencing the growth of Islamic banks’ assets in Indonesia. 

Design/methodology/approach: The research adopts Granger Causality Test under Vector Auto-Regression (VAR) method and then it adopts Vector Error Correction Model (VECM) through Impulse Response Function (IRF) and Forecasted Error Variance Decomposition (FEVD) analyses. 

Findings: Granger Causality Test concludes that industrial production has a-directional relationship with asset growth that supports better economic growth stimulates investment and 41 savings. But not the other way, the test does not show that asset growth causes industrial production index in the country. The finding also confirms that market share of Islamic banks’ asset of even 3.9% in 2012 is still too small to create impact to production output in the country. The VECM model through its IRF and FEVD explains that inflation and interest rate are major variables that negatively affect the asset growth while industrial production, human capital, and office branch excluding channelling contribute positively. 

Research Limitations: This research is only limited to the discussion of the asset growth of Islamic banks and may not represent a fair assessment of overall performance of Islamic banks during the period of the research. 

Originality/value: This paper aims to offer analysis method in examining asset growth of Islamic banks in Indonesia from year 2004 to 2012 that may be useful to be applied in other country where Islamic banks also operate.