Journal of Finance and Islamic Banking

Market Dominance in Indonesia’s Islamic Banking: Critical Analysis From an Industrial Organisation Perspective

Faizi Zaini, Airlangga Surya Kusuma Kusuma — Tue, 23 Jul 2024 00:00:00 +0700

The merger of Bank Syariah Indonesia (BSI) has resulted in the formation of a substantial Islamic bank capable of effectively competing with large conventional banks. Despite this, concerns have been raised that BSI might eliminate smaller Islamic banks. This study aims to critically analyze the characteristics of market dominance in Indonesia's Islamic banking industry before and after the merger of BSI from an industrial organization perspective. We utilized several indicators, including the Concentration Ratio (CR), Herfindahl–Hirschman Index (HHI), and Melnik ratio. The findings strongly indicate market dominance in the Islamic banking industry following the BSI merger. However, we argue that the market dominance achieved by BSI fosters a positive environment by reducing fragmentation within the industry. This merger has also prompted other conventional banks to optimize their support for Islamic banks. Additionally, BSI has the potential to drive the Islamic banking industry forward. Therefore, the BSI merger represents a viable option for the government to support the development of the Islamic banking sector, while competition within the industry remains dynamic. Based on our findings, we recommend that State-Owned Banks provide further support for the development of BSI, and that other conventional banks optimize their support for Islamic banks.

Analyzing Profitability Determinants in Indonesian Conventional and Islamic Banking

Chandra Setiawan, Salsabila Ramadhita — Tue, 30 Jul 2024 00:00:00 +0700

This article investigates the impact of financial ratios and macroeconomics on the profitability of conventional and Islamic banks in Indonesia. The study uses financial ratios as internal variables represented by CAR (X1), NPL/NPF (X2), and LDR/FDR (X3), while macroeconomics as an external variable is represented by BI7DRR (X4). The sample design used in this study includes conventional and Islamic banks from BUKU 1 and BUKU 2 in Indonesia, utilizing EViews and SPSS as analysis tools to test the proposed hypotheses. The analysis results show that CAR, NPL, and LDR have significant impacts on the ROA of conventional banks, while BI7DRR does not have a significant effect. On the other hand, in Islamic banks, only CAR and FDR significantly influence ROA, while NPF and BI7DRR do not have significant impacts. A paired sample t-test indicates a significant difference between the profitability (ROA) of conventional and Islamic banks. Based on these findings, it is recommended that conventional banks improve their management of CAR, NPL, and LDR, while Islamic banks need to focus on managing CAR and FDR, and develop innovative Sharia-compliant investment products to attract more stable funds.

Determinants of Consumption Value on Intention to Use Shariah Mobile Banking: Exploring the Role of Consumer Preference

Maksum Maksum, Slamet Haryono — Tue, 30 Jul 2024 00:00:00 +0700

This study analyzes the use of mobile banking by both Islamic and conventional bank customers using the theory of consumption value. The aim of this research is to evaluate the factors influencing customers' decisions to use dual mobile banking services. The proposed hypothesis is that the intention to use Islamic mobile banking services is influenced by functional, conditional, social, emotional, and epistemic values mediated by consumer preferences. The method used is structural equation modeling with partial least squares (SEM-PLS) with a sample of 191 people, all of whom use both conventional and Islamic mobile banking. The results show that the theory of consumption value does not directly affect the interest in using mobile banking, either conventional or Islamic, except for the emotional value variable. Consumer preferences mediate the effect of functional, conditional, emotional, and epistemic values on the intention to use conventional mobile banking. Meanwhile, conditional, emotional, and epistemic values influence the interest in using Islamic mobile banking, which is mediated by consumer preferences. These findings indicate that the consumer's intention to use mobile banking is influenced by the theory of consumption value regardless of whether the service is Islamic or not. The implication of this research is that Islamic mobile banking services need to improve their service quality by considering consumer preferences and the theory of consumption value, thereby enhancing the usage of services by both conventional and Islamic bank customers.

The Impact of the COVID-19 Pandemic on Banking Liquidity: A Case Study of Various Bank Types in Indonesia

Mukaffi Riza, Wisnu Mawardi — Tue, 30 Jul 2024 00:00:00 +0700

This study aims to examine the condition of banking liquidity in Indonesia during the COVID-19 pandemic, utilizing linear regression to analyze factors influencing the liquidity of commercial banks in Indonesia from March 2020 to June 2023. The dependent variable used is the Loan Deposit Ratio (LDR), while the independent variables include Capital Adequacy Ratio (CAR), Return on Assets (ROA), Non-Performing Loans (NPL-gross), and Credit Restructuring Ratio to total Credit. The results reveal that CAR has a significant negative effect on the liquidity of Regional Development Banks (BPD), State-Owned Enterprises (BUMN), Private Banks, and Overseas Bank Branch Offices (KCBLN). Conversely, ROA has a positive and significant impact on state-owned banks but is not significant for BPD, private, and KCBLN banks. The NPL ratio does not significantly influence liquidity across all types of banks. Credit Restructuring Ratio negatively affects BPD and positively affects KCBLN, but it does not have a statistically significant effect on State-Owned and Private Banks. This research is unique as it is the first to examine commercial banks in Indonesia during the pandemic, providing valuable insights into the factors affecting bank liquidity during this period. The findings highlight the importance of maintaining adequate capital and profitability to support bank liquidity, especially during economic crises.

Stability and Performance of Conventional and Sharia Banking in Indonesia Before and After the Covid-19 Pandemic

Taufik Eko Nugroho, Nur Dhani Hendranastiti — Tue, 30 Jul 2024 00:00:00 +0700

This study examines the impact of the COVID-19 outbreak on the performance and stability of Indonesia's dual banking system. Our sample includes the top 20 banks by assets, both conventional and sharia, from 2018 Q1 to 2023 Q3. Data for conventional banks is obtained from Bloomberg, while data for Islamic banks is sourced from each bank's official website. We use ROA, ROE, and NIM as performance variables and Z-Score and NPL as stability variables. External factors such as GDP, Inflation, BI Rate, and Exchange Rate serve as independent variables, while bank-specific variables act as controls. Panel data regression is used to determine causal relationships between these factors and banking performance and stability. We also compare bank performance and stability before and after COVID-19 using the Mann-Whitney Test. Findings indicate that the pandemic significantly affected conventional banks' Z-Score, NPL, ROA, ROE, and NIM, while only NPL was significantly affected in sharia banks. The results highlight the significant impact of GDP, exchange rate, and BI Rate on banking variables, while inflation had no effect. The type of bank significantly influences performance but not stability.

Financial Performance of Bank NTB Syariah: Before and After Becoming an Islamic Commercial Bank

Dedy Mainata, Angrum Pratiwi, Mauizatul Hasanah — Tue, 30 Jul 2024 00:00:00 +0700

This study evaluates the financial performance of Bank NTB Syariah before and after its conversion into an Islamic Commercial Bank (BUS) in 2018. The conversion aimed to foster more equitable economic growth and improve the overall status of the NTB community. Utilizing Financial Ratio Analysis (FRA), this research examines various financial ratios, including ROA, ROE, NIM, NPF, BOPO, FAR, FDR, ELR, EAR, CAR, DER, and DAR, to assess performance differences pre- and post-conversion. The findings indicate significant improvements in key financial indicators such as ROA, ROE, NIM, NPF Net, and BOPO after the conversion, demonstrating enhanced profitability and efficiency. However, there were no notable changes in the ratios of FAR, FDR, ELR, EAR, CAR, DER, DAR, and NPF Gross, suggesting stability in these areas. This comprehensive analysis highlights the positive impact of the conversion on Bank NTB Syariah's financial performance and provides valuable insights for investors, bank managers, and policymakers regarding the benefits of converting to an Islamic Commercial Bank. The study's findings underscore the importance of strategic structural changes in enhancing the financial health and operational efficiency of financial institutions.