Main Article Content
Abstract
Purpose – We intended to test and compare the durability of Islamic banking and conventional banking during the Covid-19 pandemic in Indonesia. To that end, we first compared their performance before and during the pandemic. Next, we examined the effects of pandemic shocks on the performance of each of them.
Methodology – The data covers 80 banks in Indonesia, which were divided into four groups, namely Islamic and conventional commercial banks, and Islamic and conventional rural banks. Each group consisted of 20 banks. Our observation period is 10 quarters, which was divided into two periods, namely the period before the pandemic (Q1-2019 – Q1-2020) and the period during the pandemic (Q2-2020 – Q2-2021). For comparison, we used a paired sample t-test, while testing the effect of shocks using a panel regression model.
Findings – Islamic banking outperformed conventional banking, both before and during the Covid-19 pandemic. The Covid-19 pandemic has predominantly shaken conventional banking indicators and has only slightly shaken Islamic banking. However, this does not mean Islamic banks were superior to their conventional counterparts because both were shaken, it's just that conventional banks experienced a bigger shock than their Islamic counterparts.
Originality – This is an original study that examines and compares the performance between Islamic and conventional banking using financial ratios during the Covid-19 pandemic.
Keywords
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Copyright (c) 2022 I Made Dauh Wijana, I Wayan Windnyana
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References
- Abdulle, M. Y., & Kassim, S. H. (2012). Impact of global financial crisis on the performance of Islamic and conventional banks: Empirical evidence from Malaysia. Journal of Islamic Economics, Banking and Finance, 8(4), 9-20. https://platform.almanhal.com/Files/Articles/22674
- Alaro, A. R., & Hakeem, M. (2011). Financial engineering and financial stability: The role of Islamic financial system. Journal of Islamic Economics, Banking and Finance, 7(1), 25-38. https://platform.almanhal.com/Files/Articles/22553
- 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(2), 346-360. https://doi.org/10.1016/j.ecosys.2017.09.001
- Beck, T., Demirguc-Kunt, A., & Merrouche, O. (2013). Islamic vs. conventional banking: business model, efficiency, and stability. Journal of Banking and Finance, 37(2), 433-447. https://doi.org/10.1016/j.jbankfin.2012.09.016
- 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
- Cihak, M., & Hesse, H. (2010). Islamic banks and financial stability: An empirical analysis. Journal of Financial Services Research, 38(1), 95-113. https://doi.org/10.1007/s10693-010-0089-0
- Chakroun, M. A., & Gallali, M. I. (2015). Islamic banks and financial stability: An empirical analysis of Gulf countries. International Journal of Business and Commerce, 5(3), 64-87. https://ijbcnet.com/5-3/IJBC-15-5212.pdf
- Farooq, M., & Zaheer, S. (2015). Are Islamic banks more resilient during financial panics? Pacific Economic Review, 20(1), 101-124. https://doi.org/10.1111/1468-0106.12096
- Hasan, M. M., & Dridi, J. (2011). The effects of the global crisis on Islamic and conventional banks: A comparative study. IMF Working Paper, No. 10/201. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1750689
- Imam, K., & Kpaodar, K. (2010). Islamic banking: How has it diffused?. IMF Working Paper Series, 3. https://www.elibrary.imf.org/view/journals/001/2010/195/article-A001-en.xml
- Karim, B. A., Lee, W. S., Karim, Z. A., & Jais, M. (2012). The impact of subprime mortgage crisis on Islamic banking and Islamic stock market. Procedia – Social and Behavioral Sciences, 65, 668-673. https://doi.org/10.1016/j.sbspro.2012.11.182
- Kassim, S. H., & Majid, M. S. A. (2010). Impact of financial shocks on Islamic banks: Malaysian evidence during 1997 and 2007 financial crises. International Journal of Islamic and Middle Eastern Finance and Management, 3(4), 291-305. https://doi/10.1108/17538391011093243
- Miah, M. D., & Uddin, H. (2017). Efficiency and stability: A comparative study between Islamic and conventional banks in GCC countries. Future Business Journal, 3(2), 172-185. https://doi.org/10.1016/j.fbj.2017.11.001
- Nugroho, M. R., Kurnia, A. S., Qoyum, A., & Fardila, F. (2020). The resilience of the Indonesian banking system and macroeconomic fluctuation: Islamic versus conventional banking. Journal of Islamic Monetary, Economics, anf Finance, 6(2), 419-438. https://doi.org/10.21098/jimf.v6i2.1135
- Odeduntan, A. K., Adewale, A. A., & Hamisu, S. (2016). Financial stability of Islamic banks: Empirical evidence. Journal of Islamic Banking and Finance, 4(1), 131-149. https://doi.org/10.15640/jibf.v4n1a5
- Rahim, S. R. M., & Zakaria, R. H. (2013). Comparison on stability between Islamic and conventional banks in Malaysia. Journal of Islamic Economic, Banking and Finance, 9(3), 131-149. https://platform.almanhal.com/Files/2/40149
- Rajhi, W., & Hassairi, S. A. (2013). Islamic banks and financial stability: A comparative empirical analysis between MENA and Southeast Asian countries. Region et Development, 37(1), 149-177. https://regionetdeveloppement.univ-tln.fr/wp-content/uploads/7_Rajhi.pdf
- Rasyid, A., Yousaf, S., & Khaleequzzaman, M. (2017). Does Islamic banking really strengthen financial stability? Empirical evidence from Pakistan. International Journal of Islamic and Middle Eastern Finance and Management, 10(2), 130-148. https://doi.org/10.1108/IMEFM-11-2015-0137
- Shahid, M. A., & Abbas, Z. (2012). Financial stability of Islamic banking in Pakistan: An empirical study. African Journal of Business Management, 6(10). 3706-3714. https://doi.org/10.5897/AJBM11.1306
- Wahid, M. A., & Dar, H. (2016). Stability of Islamic versus conventional banks: A Malaysian case. Jurnal Ekonomi Malaysia, 50(1), 111-132. https://111-132. 10.17576/JEM-2016-5001-09
References
Abdulle, M. Y., & Kassim, S. H. (2012). Impact of global financial crisis on the performance of Islamic and conventional banks: Empirical evidence from Malaysia. Journal of Islamic Economics, Banking and Finance, 8(4), 9-20. https://platform.almanhal.com/Files/Articles/22674
Alaro, A. R., & Hakeem, M. (2011). Financial engineering and financial stability: The role of Islamic financial system. Journal of Islamic Economics, Banking and Finance, 7(1), 25-38. https://platform.almanhal.com/Files/Articles/22553
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(2), 346-360. https://doi.org/10.1016/j.ecosys.2017.09.001
Beck, T., Demirguc-Kunt, A., & Merrouche, O. (2013). Islamic vs. conventional banking: business model, efficiency, and stability. Journal of Banking and Finance, 37(2), 433-447. https://doi.org/10.1016/j.jbankfin.2012.09.016
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
Cihak, M., & Hesse, H. (2010). Islamic banks and financial stability: An empirical analysis. Journal of Financial Services Research, 38(1), 95-113. https://doi.org/10.1007/s10693-010-0089-0
Chakroun, M. A., & Gallali, M. I. (2015). Islamic banks and financial stability: An empirical analysis of Gulf countries. International Journal of Business and Commerce, 5(3), 64-87. https://ijbcnet.com/5-3/IJBC-15-5212.pdf
Farooq, M., & Zaheer, S. (2015). Are Islamic banks more resilient during financial panics? Pacific Economic Review, 20(1), 101-124. https://doi.org/10.1111/1468-0106.12096
Hasan, M. M., & Dridi, J. (2011). The effects of the global crisis on Islamic and conventional banks: A comparative study. IMF Working Paper, No. 10/201. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1750689
Imam, K., & Kpaodar, K. (2010). Islamic banking: How has it diffused?. IMF Working Paper Series, 3. https://www.elibrary.imf.org/view/journals/001/2010/195/article-A001-en.xml
Karim, B. A., Lee, W. S., Karim, Z. A., & Jais, M. (2012). The impact of subprime mortgage crisis on Islamic banking and Islamic stock market. Procedia – Social and Behavioral Sciences, 65, 668-673. https://doi.org/10.1016/j.sbspro.2012.11.182
Kassim, S. H., & Majid, M. S. A. (2010). Impact of financial shocks on Islamic banks: Malaysian evidence during 1997 and 2007 financial crises. International Journal of Islamic and Middle Eastern Finance and Management, 3(4), 291-305. https://doi/10.1108/17538391011093243
Miah, M. D., & Uddin, H. (2017). Efficiency and stability: A comparative study between Islamic and conventional banks in GCC countries. Future Business Journal, 3(2), 172-185. https://doi.org/10.1016/j.fbj.2017.11.001
Nugroho, M. R., Kurnia, A. S., Qoyum, A., & Fardila, F. (2020). The resilience of the Indonesian banking system and macroeconomic fluctuation: Islamic versus conventional banking. Journal of Islamic Monetary, Economics, anf Finance, 6(2), 419-438. https://doi.org/10.21098/jimf.v6i2.1135
Odeduntan, A. K., Adewale, A. A., & Hamisu, S. (2016). Financial stability of Islamic banks: Empirical evidence. Journal of Islamic Banking and Finance, 4(1), 131-149. https://doi.org/10.15640/jibf.v4n1a5
Rahim, S. R. M., & Zakaria, R. H. (2013). Comparison on stability between Islamic and conventional banks in Malaysia. Journal of Islamic Economic, Banking and Finance, 9(3), 131-149. https://platform.almanhal.com/Files/2/40149
Rajhi, W., & Hassairi, S. A. (2013). Islamic banks and financial stability: A comparative empirical analysis between MENA and Southeast Asian countries. Region et Development, 37(1), 149-177. https://regionetdeveloppement.univ-tln.fr/wp-content/uploads/7_Rajhi.pdf
Rasyid, A., Yousaf, S., & Khaleequzzaman, M. (2017). Does Islamic banking really strengthen financial stability? Empirical evidence from Pakistan. International Journal of Islamic and Middle Eastern Finance and Management, 10(2), 130-148. https://doi.org/10.1108/IMEFM-11-2015-0137
Shahid, M. A., & Abbas, Z. (2012). Financial stability of Islamic banking in Pakistan: An empirical study. African Journal of Business Management, 6(10). 3706-3714. https://doi.org/10.5897/AJBM11.1306
Wahid, M. A., & Dar, H. (2016). Stability of Islamic versus conventional banks: A Malaysian case. Jurnal Ekonomi Malaysia, 50(1), 111-132. https://111-132. 10.17576/JEM-2016-5001-09