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Abstract
Purpose – This paper aims to analyze the effect of macroeconomic and global crisis variables on Islamic and conventional banking profitability, evidence from Indonesian dual-banking system.
Methodology – Time-series data from 2008q1–2021q2 were analyzed using an Autoregressive Distributed Lag (ARDL) model. This method can describe both long run and short run equilibrium between banking profitability and macroeconomic variables.
Findings – The results point out that in a long run model, sharia banking's profitability is more resistant to macroeconomics shock than conventional's. Then, in a short run model, sharia's ROA and conventional's ROA face different effects of economic growth, exchange rate, and global crisis. Sharia's NPM is more affected by macroeconomic variables than conventional's.
Originality – This study used an ARDL model to develop a dynamic relation between macroeconomic variables and dual bankings profitability.
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Copyright (c) 2022 Achmad Fadlil Abidillah; Roisatun Kasanah; Sulistya Rusgianto
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References
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- Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H. S., & Almaqtari, F. A. (2018). Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach. Cogent Economics & Finance, 6(1), 1–26. https://doi.org/https://doi.org/10.1080/23322039.2018.1548072.
- Albulescu, C. T. (2015). Banks’ profitability and financial soundness indicators: A Macro-level investigation in emerging countries. Procedia Economics and Finance, 23(October), 203–209. https://doi.org/10.1016/s2212-5671(15)00551-1
- Almaqtari, F. A., Al-Homaidi, E. A., Tabash, M. I., & Farhan, N. H. (2019). The determinants of profitability of Indian commercial banks: A panel data approach. International Journal of Finance and Economics, 24(1), 168–185. https://doi.org/10.1002/ijfe.1655
- Athari, S. A. (2021). Domestic political risk, global economic policy uncertainty, and banks’ profitability: Evidence from Ukrainian banks. Post-Communist Economies, 33(4), 458–483. https://doi.org/10.1080/14631377.2020.1745563
- Bank Indonesia. (2021). Uang beredar tumbuh meningkat pada September 2021. https://www.bi.go.id/id/publikasi/ruang-media/news-release/Pages/sp_2327221.aspx
- Batten, J., & Vo, X. V. (2019). Determinants of bank profitability: Evidence from Vietnam. Emerging Markets Finance and Trade, 55(6), 1417–1428. https://doi.org/10.1080/1540496X.2018.1524326
- Bolarinwa, S. T., & Soetan, F. (2019). The effect of corruption on bank profitability. Journal of Financial Crime, 26(3), 753–773. https://doi.org/10.1108/JFC-09-2018-0102
- Borio, C., Gambacorta, L., & Hofmann, B. (2017). The influence of monetary policy on bank profitability. International Finance, 20(1), 48–63. https://doi.org/10.1111/infi.12104
- Bucevska, V., & Hadzi Misheva, B. (2017). The determinants of profitability in the banking industry: Empirical research on selected Balkan countries. Eastern European Economics, 55(2), 146–167. https://doi.org/10.1080/00128775.2016.1260473
- Chowdhury, M. A. F., & Rasid, M. E. S. M. (2017). Determinants of performance of Islamic banks in GCC countries: Dynamic GMM approach. Advances in Islamic Finance, Marketing, and Management, 49–80. https://doi.org/10.1108/9781786358981
- Dao, B. T. T., & Nguyen, D. P. (2020). Determinants of profitability in commercial banks in Vietnam, Malaysia and Thailand. Journal of Asian Finance, Economics and Business, 7(4), 133–143. https://doi.org/10.13106/JAFEB.2020.VOL7.NO4.133
- Doan, T. T. T., & Bui, T. N. (2020). An empirical analysis of macroeconomic and bank-specific factors affecting profitability of Vietnam banks. Accounting, 6(6), 1059–1064. https://doi.org/10.5267/j.ac.2020.7.014
- Engel, C., & West, K. D. (2005). Exchange rates and fundamentals. Journal of Political Economy, 113(3), 485–517. https://doi.org/https://doi.org/10.1086/429137
- Fidanoski, F., Choudhry, M., Davidovic, M., & Sergi, B. (2018). What does affect profitability of banks in Croatia?. Competitiveness Review, 28(4), 338–367. https://doi.org/10.1108/CR-09-2016-0058
- Garcia, M. T. M., & Guerreiro, J. P. S. M. (2016). Internal and external determinants of banks’ profitability: The Portuguese case. Journal of Economic Studies, 43(1), 90–107. https://doi.org/10.1108/JES-09-2014-0166
- Istiqomah, S. N., Hendratmi, A., Sukmaningrumb, P. S., & Widiastuti, T. (2021). Macroeconomic and bank specific on profitability: The case of Islamic rural bank in Indonesia. Review of International Geographical Education Online, 11(4), 495–502. https://doi.org/10.33403/rigeo.800665
- Javaid, S., & Alalawi, S. (2018). Performance and profitability of Islamic banks in Saudi Arabia: An empirical analysis. Asian Economic and Financial Review, 8(1), 38–51. https://doi.org/10.18488/journal.aefr.2018.81.38.51
- Karim, A. A. (2017). Ekonomi Makro Islami (Edisi 3, C). Raja Grafindo Persada.
- Katırcıoglu, S., Ozatac, N., & Taspınar, N. (2020). The role of oil prices, growth and inflation in bank profitability. Service Industries Journal, 40(7–8), 565–584. https://doi.org/10.1080/02642069.2018.1460359
- Le, T. D., & Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65–73. https://doi.org/10.1016/j.cbrev.2020.04.001
- Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: Empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115. https://doi.org/10.1108/jfra-05-2015-0060
- Nguyen, M. L. T., & Bui, T. N. (2019). Stock market, real estate market, and economic growth: An ARDL approach. Investment Management and Financial Innovations, 16(4), 290–302. https://doi.org/10.21511/imfi.16(4).2019.25
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
- Rahman, H. U., Yousaf, M. W., & Tabassum, N. (2020). Bank-specific and macroeconomic determinants of profitability: A revisit of Pakistani banking sector under dynamic panel data approach. International Journal of Financial Studies, 8(3), 1–19. https://doi.org/10.3390/ijfs8030042
- Salike, N., & Ao, B. (2018). Determinants of bank’s profitability: Role of poor asset quality in Asia. China Finance Review International, 8(2), 216–231. https://doi.org/10.1108/CFRI-10-2016-0118
- Saona, P. (2016). Intra- and extra-bank determinants of Latin American Banks’ profitability. International Review of Economics and Finance, 45, 197–214. https://doi.org/10.1016/j.iref.2016.06.004
- Wahyudi, S. T., Nabella, R. S., & Sari, K. (2021). Measuring the competition and banking efficiency level: A study at four commercial banks in Indonesia. Banks and Bank Systems, 16(1), 17–26. https://doi.org/10.21511/bbs.16(1).2021.02
- Yahya, A. T., Akhtar, A., & Tabash, M. I. (2017). The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: An empirical evidence. Investment Management and Financial Innovations, 14(4), 30–39. https://doi.org/10.21511/imfi.14(4).2017.04
- Yi, P. J., R, D., Yen, Y. Y., Suganthi, & Shalini. (2018). The macroeconomic determinants of foreign bank’s profitability in Malaysia. International Journal of Engineering and Technology (UAE), 7(3), 152–160. https://doi.org/10.14419/ijet.v7i3.21.17153
- Yüksel, S., Mukhtarov, S., Mammadov, E., & Özsarı, M. (2018). Determinants of profitability in the banking sector: An analysis of post-Soviet countries. Economies, 6(3), 1–15. https://doi.org/10.3390/economies6030041
References
Adelopo, I., Lloydking, R., & Tauringana, V. (2018). Determinants of bank profitability before, during, and after the financial crisis. International Journal of Managerial Finance, 14(4), 378–398. https://doi.org/10.1108/IJMF-07-2017-0148
Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H. S., & Almaqtari, F. A. (2018). Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach. Cogent Economics & Finance, 6(1), 1–26. https://doi.org/https://doi.org/10.1080/23322039.2018.1548072.
Albulescu, C. T. (2015). Banks’ profitability and financial soundness indicators: A Macro-level investigation in emerging countries. Procedia Economics and Finance, 23(October), 203–209. https://doi.org/10.1016/s2212-5671(15)00551-1
Almaqtari, F. A., Al-Homaidi, E. A., Tabash, M. I., & Farhan, N. H. (2019). The determinants of profitability of Indian commercial banks: A panel data approach. International Journal of Finance and Economics, 24(1), 168–185. https://doi.org/10.1002/ijfe.1655
Athari, S. A. (2021). Domestic political risk, global economic policy uncertainty, and banks’ profitability: Evidence from Ukrainian banks. Post-Communist Economies, 33(4), 458–483. https://doi.org/10.1080/14631377.2020.1745563
Bank Indonesia. (2021). Uang beredar tumbuh meningkat pada September 2021. https://www.bi.go.id/id/publikasi/ruang-media/news-release/Pages/sp_2327221.aspx
Batten, J., & Vo, X. V. (2019). Determinants of bank profitability: Evidence from Vietnam. Emerging Markets Finance and Trade, 55(6), 1417–1428. https://doi.org/10.1080/1540496X.2018.1524326
Bolarinwa, S. T., & Soetan, F. (2019). The effect of corruption on bank profitability. Journal of Financial Crime, 26(3), 753–773. https://doi.org/10.1108/JFC-09-2018-0102
Borio, C., Gambacorta, L., & Hofmann, B. (2017). The influence of monetary policy on bank profitability. International Finance, 20(1), 48–63. https://doi.org/10.1111/infi.12104
Bucevska, V., & Hadzi Misheva, B. (2017). The determinants of profitability in the banking industry: Empirical research on selected Balkan countries. Eastern European Economics, 55(2), 146–167. https://doi.org/10.1080/00128775.2016.1260473
Chowdhury, M. A. F., & Rasid, M. E. S. M. (2017). Determinants of performance of Islamic banks in GCC countries: Dynamic GMM approach. Advances in Islamic Finance, Marketing, and Management, 49–80. https://doi.org/10.1108/9781786358981
Dao, B. T. T., & Nguyen, D. P. (2020). Determinants of profitability in commercial banks in Vietnam, Malaysia and Thailand. Journal of Asian Finance, Economics and Business, 7(4), 133–143. https://doi.org/10.13106/JAFEB.2020.VOL7.NO4.133
Doan, T. T. T., & Bui, T. N. (2020). An empirical analysis of macroeconomic and bank-specific factors affecting profitability of Vietnam banks. Accounting, 6(6), 1059–1064. https://doi.org/10.5267/j.ac.2020.7.014
Engel, C., & West, K. D. (2005). Exchange rates and fundamentals. Journal of Political Economy, 113(3), 485–517. https://doi.org/https://doi.org/10.1086/429137
Fidanoski, F., Choudhry, M., Davidovic, M., & Sergi, B. (2018). What does affect profitability of banks in Croatia?. Competitiveness Review, 28(4), 338–367. https://doi.org/10.1108/CR-09-2016-0058
Garcia, M. T. M., & Guerreiro, J. P. S. M. (2016). Internal and external determinants of banks’ profitability: The Portuguese case. Journal of Economic Studies, 43(1), 90–107. https://doi.org/10.1108/JES-09-2014-0166
Istiqomah, S. N., Hendratmi, A., Sukmaningrumb, P. S., & Widiastuti, T. (2021). Macroeconomic and bank specific on profitability: The case of Islamic rural bank in Indonesia. Review of International Geographical Education Online, 11(4), 495–502. https://doi.org/10.33403/rigeo.800665
Javaid, S., & Alalawi, S. (2018). Performance and profitability of Islamic banks in Saudi Arabia: An empirical analysis. Asian Economic and Financial Review, 8(1), 38–51. https://doi.org/10.18488/journal.aefr.2018.81.38.51
Karim, A. A. (2017). Ekonomi Makro Islami (Edisi 3, C). Raja Grafindo Persada.
Katırcıoglu, S., Ozatac, N., & Taspınar, N. (2020). The role of oil prices, growth and inflation in bank profitability. Service Industries Journal, 40(7–8), 565–584. https://doi.org/10.1080/02642069.2018.1460359
Le, T. D., & Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65–73. https://doi.org/10.1016/j.cbrev.2020.04.001
Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: Empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115. https://doi.org/10.1108/jfra-05-2015-0060
Nguyen, M. L. T., & Bui, T. N. (2019). Stock market, real estate market, and economic growth: An ARDL approach. Investment Management and Financial Innovations, 16(4), 290–302. https://doi.org/10.21511/imfi.16(4).2019.25
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Rahman, H. U., Yousaf, M. W., & Tabassum, N. (2020). Bank-specific and macroeconomic determinants of profitability: A revisit of Pakistani banking sector under dynamic panel data approach. International Journal of Financial Studies, 8(3), 1–19. https://doi.org/10.3390/ijfs8030042
Salike, N., & Ao, B. (2018). Determinants of bank’s profitability: Role of poor asset quality in Asia. China Finance Review International, 8(2), 216–231. https://doi.org/10.1108/CFRI-10-2016-0118
Saona, P. (2016). Intra- and extra-bank determinants of Latin American Banks’ profitability. International Review of Economics and Finance, 45, 197–214. https://doi.org/10.1016/j.iref.2016.06.004
Wahyudi, S. T., Nabella, R. S., & Sari, K. (2021). Measuring the competition and banking efficiency level: A study at four commercial banks in Indonesia. Banks and Bank Systems, 16(1), 17–26. https://doi.org/10.21511/bbs.16(1).2021.02
Yahya, A. T., Akhtar, A., & Tabash, M. I. (2017). The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: An empirical evidence. Investment Management and Financial Innovations, 14(4), 30–39. https://doi.org/10.21511/imfi.14(4).2017.04
Yi, P. J., R, D., Yen, Y. Y., Suganthi, & Shalini. (2018). The macroeconomic determinants of foreign bank’s profitability in Malaysia. International Journal of Engineering and Technology (UAE), 7(3), 152–160. https://doi.org/10.14419/ijet.v7i3.21.17153
Yüksel, S., Mukhtarov, S., Mammadov, E., & Özsarı, M. (2018). Determinants of profitability in the banking sector: An analysis of post-Soviet countries. Economies, 6(3), 1–15. https://doi.org/10.3390/economies6030041