Main Article Content
Abstract
Purpose – Albeit Islamic banks are often considered more stable than conventional banks, empirical evidence to support the stability view is relatively scanty. This study, therefore, mainly aims to investigate whether Islamic banks are more stable than conventional banks in Indonesia. To enrich and support the analysis, it will also compare the factors influencing the stability of Islamic banks and conventional banks in the country.
Methodology – This paper employs a dynamic panel data model using the system-GMM (General Method of Moment) estimator. The data used are quarterly data from 83 conventional banks and 11 Islamic banks in Indonesia during September 2015-June 2019 period.
Findings – The study did not find any significant difference in the stability of conventional and Islamic banks. This result is presumably influenced by the small size and small market share of Islamic banks, as well as many similarities between the two types of banking systems. Furthermore, the stability of the conventional bank in Indonesia is more influenced by macroeconomic factors including interest rate, exchange rate and financial inclusions, meanwhile the stability of Islamic banks is more influenced by the banks’ specific factors such as financing growth, efficiency and risk management factors.
Research limitations – The data used in the study is limited to the period from September 2015 to June 2019. The variables utilized are also limited to those taken from publicly available financial statements.
Originality – This paper provides additional empirical evidence regarding Islamic banking stability in Indonesia by using the latest data. While theoretically Islamic banks are expected to be more stable than conventional banks, this study did not find strong support for the case of Indonesia during the period of observation.
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References
Abduh, M., & Omar, M. A. (2012). Islamic banking and economic growth: The Indonesian experience. International Journal of Islamic and Middle Eastern Finance and Management, 5(1), 35-47. http://dx.doi.org/10.1108/17538391211216811
Aggarwa, R., & Jacques, T. K. (2001). The impact of FDICIA and prompt corrective action on bank capital and risk: Estimates using a simultaneous equations model. Journal of Banking & Finance, 25(6), 1139-1160. https://doi.org/10.1016/S0378-4266(00)00125-4
Albaity, M., Mallek, R. S., & Noman, A. H. (2019). Competition and bank stability in the MENA region: The moderating effect of Islamic versus conventional banks. Emerging Markets Review, 38 , 310–325. https://doi.org/ 10.1016/j.ememar.2019.01.003
Alqahtani, F., Mayes, D. G., & Brown, K. (2016). Economic turmoil and Islamic banking: evidence from the Gulf Cooperation Council. Pacific-Basin Finance Journal, 39, 44-56. https://doi.org/10.1016/j.pacfin.2016.05.017
Alqahtani, F., & Mayes, D. G. (2018). Financial stability of Islamic banking and the global financial crisis: Evidence from the Gulf Cooperation Council. Economic Systems, 42. https://doi.org/ 10.1016/j.ecosys.2017.09.001.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error component models. Journal of Econometrics, 29-51. Retrieved from https://www.cemfi.es/~arellano/arellano-bover-1995.pdf
Aysan, A., Disli, M., & Ozturk, H. (2018). Bank lending channel in a dual banking system: Why are Islamic banks so responsive? Working Paperof Faculty of Economics and Business Administration, Ghent University. Retrieved from http://wps-feb.ugent.be/Papers/wp_17_938.pdf
Baltagi, B. H. (2005). Econometrics Analysis of Panel Data (3rd Ed.). England: John Wiley & Sons, Ltd.
Baum, C. F. (2003). Instrumental variables and GMM: Estimation and testing. The Stata Journal, 3(1), 1–31. https://doi.org/10.1177/1536867X0300300101
Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2013). Islamic vs conventional banking: business model, efficiency and stability. Journal of Banking and Finance 37 (2). https://doi.org/10.1016/j.jbankfin.2012.09.016
Beck, T., Hesse, H., K. T., & Von Westernhagen, N. (2009). VOX CEPR Policy Portal: Bank Ownership and Stability: Evidence from Germany. Retrieved from https://voxeu.org/article/bank-ownership-and-stability-evidence-germany.]
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Berger, A. N., & Bouwman, C. (2013). How does capital affect bank performance during finansial crises?. Journal of Financial Economics, 109(1): 146-176. https://doi.org/10.1016/j.jfineco.2013.02.008
Blundell, R., & Bond, S. (1998). Initial condtitions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. https://doi.org/10.1016/S0304-4076(98)00009-8
Bourkhis, K., & Nabi, M. S. (2013). Islamic and conventional banks soundness during the 2007–2008 financial crisis. Review of Financial Economics, 22(2), 68–77. https://doi.org/10.1016/j.rfe.2013.01.001
Buchory, H. A. (2015). Bank profitability: How does credit risk and operational efficiency effect. Journal of Business and Management Science, 3(4), 118-123. https://doi.org/10.12691/jbms-3-4-3
Carretta, A., Farina, V., Fiordelisi, F., Schwizer, P., & Stentella, F. S. (2015). Don’t stand so close to me: The role of supervisory style in banking stability. Journal of Banking & Finance, 52, 180-188. https://doi.org/10.1016/j.jbankfin.2014.09.015
Chaibi, H., & Ftiti, Z. (2015). Credit risk determinants: Evidence from a cross-country study. Research in International Business and Finance, 33, 1-16. https://doi.org/10.1016/j.ribaf.2014.06.001
Chong, B., & Liu, M.-H. (2009). Islamic banking: interest-free or interest-based?. Journal Pacific Basin Finance, 17 (1), 125-144. https://doi.org/10.1016/j.pacfin.2007.12.003
Cihak, M., & Hesse, H. (2008). Islamic banks and financial stability: An empirical analysis. IMF Working Paper, WP/08/16. Retrieved from https://www.imf.org/external/pubs/ft/wp/2008/wp0816.pdf
Cynthis. (2016). Pengaruh Risiko Likuiditas, Risiko Kredit, Kepemilikan Bank, Dan Kondisi Ekonomi Terhadap Stabilitas Bank Umum Di Indonesia (Tesis). Jakarta: Fakultas Ekonomi dan Bisnis Universitas Indonesia.
De Haan, J., & Poghosyan, T. (2012). Bank size, market concentration, and bank earnings. Journal of International Financial Markets, Institutions & Money, 22(1), 35-54. https://doi.org/10.1016/j.intfin.2011.07.002
DeYoung, R., & Torna, G. (2013). Nontraditional banking activities and bank failures during the financial crisis. Journal of Financial Intermediation, 22(3), 397-421. https://doi.org/10.1016/j.jfi.2013.01.001
Espinoza, R., & Prasad, A. (2010). Nonperforming loans in the GCC banking systemand their macroeconomic effects. International Monetary Fund Working Paper, 10/224. Retrieved from https://www.imf.org/external/pubs/ft/wp/2010/wp10224.pdf
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Foos, D., Norden, L., & Weber, M. (2010). Loan growth and riskiness of banks. Journal of Banking & Finance, 34(12), 2929–2940. https://doi.org/10.1016/j.jbankfin.2010.06.007
Ghosh, A. (2015). Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states. Journal of Financial Stability 20. https://doi.org/10.1016/j.jfs.2015.08.004.
Ghozali, I (2009). Aplikasi Analisis Multivariate dengan Program SPSS. Semarang: UNDIP.
Greuning, H. V., & Iqbal, Z. (2009). Risk analysis for Islamic banks. Journal of King Abdulaziz, 22(1), 197-204. Retreved from https://iei.kau.edu.sa/Files/121/Files/153880_IEI-VOL-22-1-09E-BRIslahi.pdf
Han, R., & Melecky, M. (2013). Financial inclusion for financial stability in the global financial crisis. Policy Research Working Paper 6577. Retrieved from http://documents1.worldbank.org/curated/en/850681468325448388/pdf/WPS6577.pdf
Hannig, A., & Jansen, S. (2010). Financial inclusion and financial stability: Current policy issues. ADBI Working Paper Series, 259. Retrieved from https://www.adb.org/sites/default/files/publication/156114/adbi-wp259.pdf
Haq, M., & Heaney, R. (2012). Factors determining European bank risk. Journal of International Financial Markets, Institutions and Money, 22(4), 696-718. https://doi.org/10.1016/j.intfin.2012.04.003
Hasan, M., & Dridi, J. (2011). The effects of the global crisis on Islamic and Conventional banks: a comparative study. Journal of International Commerce, Economics and Policy, 2 (2), 163-200. https://doi.org/10.1142/S1793993311000270
Hoffmann, P. S. (2011). Determinants of the profitability of the US banking industry. International Journal of Business and Social Science, 2(22), 255-269. http://www.ijbssnet.com/journals/Vol_2_No_22_December_2011/30.pdf
Hutapea, E. G., & Kasri, R. A. (2010). Bank margin determination: a comparison between Islamic and conventional banks in Indonesia. International Journal of Islamic and Middle Eastern Finance and Management, 3(1), 65-82. https://doi.org/10.1108/17538391011033870
Ibrahim, M. H. (2016). Business cycle and bank lending procyclicality in a dual banking system. Economic Modelling, 55(C), 127–134. https://doi.org/10.1016/j.econmod.2016.01.013
Ibrahim, M. H., & Rizvi, S. A. (2018). Bank lending, deposits and risk-taking in times of crisis: A panel analysis of Islamic and conventional banks. Emerging Markets Review, 35(C), 31-47. https://doi.org/ 10.1016/j.ememar.2017.12.003
'Imbierowicz, B., & Rauch, C. (2014). The relationship between liquidity risk and credit risk in banks. Journal of Banking & Finance, 40, 242–256. https://doi.org/10.1016/j.jbankfin.2013.11.030
Kabir, M. N., Worthington, A., & Gupta, R. (2015). Comparative credit risk in Islamic and conventional bank. Pacific-Basin Finance Journal, 34(C), 327-353. Ihttps://doi.org/10.1016/j.pacfin.2015.06.001
Kasman, A., Tunc, G., Vardar, G., & Berna, A. (2010). Consolidation and commercial bank net interest margins: Evidence from the old and new European Union members and candidate countries. Economic Modelling, 27(3), 648-655. https://doi.org/10.1016/j.econmod.2010.01.004
Keeton, W. (1999). Does faster loan growth lead to higher loan losses? Federal Reserve Bank of Kansas City Econ Rev, Second Quarter, 57–75. Retrieved from https://www.kansascityfed.org/publicat/econrev/PDF/2q99keet.pdf
Khan, F. (2010). How “Islamic” is Islamic banking? Journal of Economic Behavior & Organization 76(3), 805-820. https://doi.org/10.1016/j.jebo.2010.09.015
Klein, N. (2013). Non-performing Loans in CESEE: Determinants and impact on macroeconomic performance. International Monetary Fund Working Paper13/72. Retrieved from https://www.imf.org/external/pubs/ft/wp/2013/wp1372.pdf
Louizis, D. P. (2012). Macroeconomic and bank-specific deter-minants on non-performing loans in Greece: a comparative study of mortgage,business and consumer loan portfolios. Journal of Banking and Finance, 36(4), 1012–1027. https://doi.org/10.1016/j.jbankfin.2011.10.012
Meslie, C., Tacneng, R., & Tarazi, A. (2014). Is bank income diversification beneficial: Evidence from an emerging economy. Journal of International Financial Markets, 31, 97-126. https://doi.org/10.1016/j.intfin.2014.03.007
Morgan, P. J., & Pontines, V. (2014). Financial stability and financial Inclusion. ADBI Working Paper Series,. 488. Retrieved from http://www.shram.org/uploadFiles/20180116111859.pdf
Neaime, S., & Gaysset, I. (2017). Financial Inclusion and Stability in MENA: Evidence from poverty and inequality. Finance Research Letters. http://dx.doi.org/10.1016/j.frl.2017.09.007
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