Economics, Finance, and Business Review

Determinants of financing in Indonesian Islamic banking

Arifa Pratami — 2025-12-31

This study aims to analyze the factors that affect the distribution of financing in Islamic commercial banks in Indonesia for the period 2015–2023 with quarterly panel data on 34 Islamic commercial banks. This study applies the dynamic panel regression method with the GMM system. The results show that market power, as measured by the Lerner Index, has a significant negative effect, indicating that a less competitive market structure is suppressing financing expansion. Internal factors such as profits and bank size have a positive effect, while capital adequacy reduces financing disbursement. In profit-sharing financing (PLS), risk-based variables such as NPF and profitability have a significant negative influence, while bank size and economic conditions have a positive effect. Non-profit sharing (Non-PLS) financing is more sensitive to operational efficiency, financing risks, and macroeconomic conditions. The COVID-19 pandemic has been proven to reduce financing in all categories, especially PLS, which have higher risks. Overall, the results of the study confirm that the financing behavior of Islamic banks in Indonesia is influenced by a combination of market dynamics, the fundamental strength of banks, risk quality, and macroeconomic conditions, with significant differences between profit-sharing and non-profit-based financing.

Credit risk, COVID, and bank profitability in Indonesian conventional banks

Aufa Al Zafir — 2025-12-31

This study aims to analyze credit risk and other control variables on the profitability of conventional banks in Indonesia. Profit is measured by return on assets (ROA), and credit risk is measured by Non-Performing Loan (NPL). In addition, this study examines the moderation effect of the COVID pandemic through the interaction between NPLs and COVID on ROA. The study uses conventional bank panel data in Indonesia for the period 2015–2023 using quarterly data and a dynamic panel regression approach. The results of the study found that NPL negatively affected ROA. The assets, LDR, and CAR had a positive effect on ROA, while CIR, GDP, and COVID had a significant negative effect on ROA. Interestingly, the interaction between NPLs and COVID showed a positive influence, indicating that the pandemic encouraged increased risk management effectiveness and banking operational efficiency. The implications of the findings of the positive effects of the interaction between credit risk and the pandemic on bank profitability are the need to affirm the role of adaptive policies and credit restructuring in maintaining the performance of the banking sector in times of crisis.

Competition and profitability of Sharia rural banks in Indonesia

Mutia Pamikatsih — 2025-12-31

The purpose of this study is to analyze the influence of market forces, measured by the Lerner Index, on the profitability (ROA) of Sharia Rural Banks (SRBs) in Indonesia, as well as to test the validity of the Structure–Conduct–Performance (SCP) Hypothesis and the Efficient Structure Hypothesis (ESH). Using Fixed Effect Model (FE) panel data regression, this study involved all SRBs and analyzed SRBs separately based on asset size (large vs. small). The estimated results show that overall, market forces have a positive and significant influence on ROA, providing strong support for the SCP Hypothesis. The heterogeneity analysis revealed a crucial finding: the influence of market forces is much more dominant on Small SRBs, which shows a greater ability to exploit the concentration of local markets. On the other hand, the profitability of Large SRBs is also driven by internal efficiency (supporting ESH), and has proven to be more resistant to external shocks (COVID-19) than Small SRBs. Financing risk factors (NPF) and capital adequacy (CAR) are the pressures of profitability in all segments. These findings imply that the SCP/ESH debate depends on the scale of SRB, thus demanding the need for differentiated oversight policies to improve SRB's resilience and efficiency.

Determinants of non-performing financing of Islamic rural banks in Indonesia

Lutfi Bangun Lestari — 2026-01-05

This study analyzes the determinants of Non-Performing Financing (NPF) in Islamic Rural Banks (IRBs) in Indonesia by considering internal, external, and market competition factors. Internal variables include bank size (LAsset), Capital Adequacy Ratio (CAR), Cost to Income Ratio (CIR), and Financing to Deposit Ratio (FDR), while external variables include Gross Regional Domestic Product (GDP) and the impact of the COVID-19 pandemic. The Lerner Index is used as an indicator of market competition. Panel data from 154 IRBs for the 2019-2023 period was analyzed using a static panel. The results showed that the size of banks, CAR, CIR, and FDR had a significant influence on NPF, while the influence of market competition and macroeconomic conditions varied between Java and outside Java. These findings provide implications for IRB management in managing financing risks, for regulators in establishing policies that are responsive to different regional conditions, and enriching the empirical literature related to micro-Islamic banking. Further research is suggested to explore additional variables such as management quality, financing strategies, and local socio-economic factors to understand financing risk variations in more depth.