JMIF CORPORATE GOVERNANCE AND FINANCING RISK OF SHARIA BANK IN INDONESIA

Abstract

This study aims to examine the influence of Islamic bank governance on the financing risk of Islamic Commercial Banks in Indonesia. Sharia bank governance is proxied by the variables of the board of commissioners, audit committee, and sharia supervisory board (SSB). This study used panel data of Islamic commercial banks from 2015 to 2020 using purposive sampling. The data analysis technique used panel data regression through a fixed effect model. The test results show that the audit committee variable has a significant negative effect on the financing risk of Islamic commercial banks. Meanwhile, the board of commissioners and the SSB of the bank have no effect on the financing risk of Islamic commercial banks.

INTRODUCTION
The overall growth of Islamic banking has been tremendous over the last two decades, and Islamic financial institutions have become an integral part of the world's financial system (Mahdi & Abbes, 2018). Islamic banking is one of the fastest growing sectors of the global financial industry. The following is data on the development of sharia banking summarized by the Financial Services Authority. The data shows that the NPF of Islamic Commercial Banks during the period is in healthy condition but the condition is less stable where there is an increase and decrease every year. This means that the bank is able to control problem financing properly. According to POJK Number indicates that BUS is in the healthy predicate. The smaller the bank's NPF, the higher the bank's performance and operations (Rizal & Humaidi, 2021;Wahasusmiah & Watie, 2018).
Financing Risk is an indicator of financial stability referred to by several international institutions and policy makers to assess the financial sector (Tekathen & Dechow, 2013).
Therefore, effective financing risk management appears to be essential for bank survival and global financial stability. Financing risk results in the inability of the borrower to repay the loan that has been obtained or to repay the loan principal under the conditions specified in the financing agreement (Greuning & Brajovic-Bratanovic, 2003). Some researchers believe that Financing risk is the most important financial risk for a bank (Campbell, 2007). Risk taking on misappropriated financing can result in ineffective governance mechanisms. Thus, good risk management is necessary to ensure good corporate governance and create value for all stakeholders (Greuning & Bratanovic, 2020).
In understanding the risk of financing is carried out through agency theory which emphasizes agency problems arising from differences in interests. From these conflicts Jensen and

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Meckling H., (1976) discuss agency problems, conflicts of interest, information asymmetry problems and the resulting agency costs. Since these costs are significant, some researchers suggest that they can be reduced by ensuring effective control over the behavior of managers by introducing governance mechanisms. Among these mechanisms, special importance has been given to the board of commissioners. In a complex sector such as banking, the board of directors plays a key role as administrators are accountable to shareholders, depositors and regulators. All sectors of the complex are asked to agree on a common policy on risk management (Pathan, 2009). The bank governance system is basically based on regulatory and internal control mechanisms. It helps to discipline managers, control bank policies and their proper implementation and influence risk strategy (Andres & Vallelado, 2008). Banking governance seems to be the first mechanism that can prevent bank risk. The banking sector is characterized by its complexity and the board of directors is the most effective control mechanism. Its role is to ensure that the interests of all stakeholders (shareholders, regulators, managers) are needed. Therefore, good governance is needed to manage all stakeholders.
This study aims to analyze corporate governance that affects the financing risk of Islamic banks in Indonesia. Financing risk studies in the banking industry are important for the following reasons. First, financing risk is one of the criteria used to measure a bank's financial performance.
Thus, the high level of NPF in banks will have a negative impact on bank income and business continuity (Haniifah, 2015). Second, a high NPF ratio does not only have an impact on individual banks but also has an impact on the stability of a country's economy. According to Abdul-rahman et al., (2017) poor NPF management "will lead to banking failures and financial vulnerabilities".
The correlation between the governance structure of the board and financing risk has been the subject of much (Farag & Mallin, 2015;Giovannoni et al., 2014).
This research refers to Rafay's research, (2020) by proxying corporate governance with the size of the board of commissioners, independent board of commissioners, audit committees conducted at conventional banks. The researcher claims that the Sharia Supervisory Board is because the object of research is Islamic banks as an independent variable on financing risk.
Corporate governance is considered capable of minimizing financing risks.
According to Aslam and Haron, (2021) board size can influence bank risk-making decisions.
Thus, several studies have demonstrated a relationship between the number of directors on a board and bank risk. As a result, the diversity and expertise of each director helps to better manage risks and thereby minimize financing risks (Hillman & Dalziel, 2003).
The audit committee is considered one of the most important committees in the work of banks and the banking sector in general, and this importance stems from its oversight role over  (Nomran et al., 2016). Thus, a more significant level of disclosure and transparency helps Islamic banks to take less risks and this increases investor confidence and performance of Islamic banks. In addition, Mollah et al., (2017) documented that SSB helps Islamic banks to adhere to deep qualities and morals as opposed to greed and social equality. The multi-layer governance provided by SSB functions as an autonomous control instrument in controlling top management not to participate in extreme risk taking.

Agency Theory
Agency theory arises from the separation between ownership and control. Agency theory finds its origin in property rights theory where there is a distinction between shareholders and agents, namely managers (Eisenhardt et al., 1989). From this agency conflict, management is needed that is agreed between the owners (shareholders) and agents (management) (Hendrastuti & Harahap, 2023).
Corporate Governance is a system where rules and regulations are made to ensure trust, accountability, fairness, independence, responsibility, transparency, social responsibility and shareholder rights (Alsagr et al., 2018;Farag & Mallin, 2015). Corporate governance mechanisms play an important role in banking operations to enhance the ability of Islamic banks to withstand external shocks, including external financial difficulties (Berger et al., 2016). Therefore, in banking governance, commissioners perform an effective monitoring and advisory role based on their experience and capabilities. In short, corporate governance is an approach in which shareholders protect their investment from management and maintain return on investment (Aslam & Haron,

Board of Commissioners Size and Financing Risk
According to agency theory, board size can affect a bank's risk-making decisions. Thus, several studies have shown a relationship between the number of commissioners on the board and bank risk. As a result, the diversity and expertise of individual directors helps to better manage risks and thereby minimize financing risks (Hillman & Dalziel, 2003). In addition, with reference to the shareholder moral hazard hypothesis, small board size is associated with a high level of risk because shareholders support excessive risk taking at the expense of other stakeholders. Audit committee size has been widely analyzed in the context of banking governance, measuring the total audit committee members in an organization (Oussii & Klibi, 2020;Pillai & Al-malkawi, 2017). Rafay, (2020) claims that the existence of an audit committee shows transparency and accountability. Agency theory assumes that conflicts between management and shareholders often encourage the fulfillment of personal interests from opportunistic management behavior and damage the interests of shareholders (Khan, 2017). Thus, in light of agency theory, Connelly et al., (2011) argues that a strong audit committee supports organizations to differentiate from other organizations in their risk-taking behavior. In addition, the size of the audit committee examines the efficiency of the organization, because the larger size of the audit committee has diverse skills and expertise, thereby increasing their effectiveness to screen banking operations (Abdeljawad & Saleh, 2020).
A previous research by Abdeljawad and Saleh, (2020) observed a negative relationship between audit committees and risk taking. A study by Jermias and Gani, (2013) reported a negative and significant relationship between the audit committee and risk taking. From this description, the hypothesis is below.

METHOD
The research method of this study used a quantitative research method. The quantitative method can be interpreted as a research method based on the philosophy of positivism, used to examine certain populations or samples, data collection using research instruments, data analysis is quantitative or statistical, aims to describe and test hypotheses (Sugiyono, 2014). The type of data in this study used panel data for annual financial reports for the period 2015 to 2020 at Islamic banks in Indonesia.
The following is the measurement formulation for each variable: To test the hypothesis, the following model is used: NPF= α+β1UKOMit+β2UDPSit+β3UDPSit+β4LN_ASETit+e

RESULT AND DISCUSSION
The research was conducted at Islamic Commercial Banks in Indonesia in 2015-2020.
The results of the descriptive analysis can be seen from the following table:

Uji Pemilihan Model
Panel data regression test is used to select the best model. Panel data is observational data that combines time series data and cross section data. Time series means that the data consists of several periods and cross section means that the data consists of several objects, so the panel Source: Data processed with eviews 12, 2023 The results of the chow test on the fixed effect model (FEM) obtained a probability value of 0.000 <0.005, so H0 is rejected. So the results show that the fixed effect model is the chosen model. Next, do a classic assumption test on the results of the fixed effect model.

RESULT
The research was conducted at Islamic Commercial Banks in Indonesia in 2015-2020. The results of the descriptive analysis can be seen from the following table:

DISCUSSION The Influence of the Board of Commissioners on Financing Risk
This study shows that the board of commissioners has no effect on the financing risk of Islamic banks, this is due to the small board size, Alipour and Ghanbari, (2019) in the agency theory argues that a larger board has a higher ability to monitor top management, decision making, asset allocation, related uncertainties and reducing agency problems. The results of this study are in line with research conducted by Marinova et al., (2016) claiming that the Board of Commissioners has no effect on financing risk.
The data shows that the average size of the board of commissioners is only two board members. The small number of commissioners results in the ineffectiveness of the board's ability to supervise financing. Alipour and Ghanbari, (2019) reveal that the bigger the board, the better the supervision will be carried out.

The Influence of SSB on Financing Risk
The results of this study indicate that SSB has no effect on financing risk. SSB in Islamic banks is only a compliance supervisor for bank activities in sharia (Mollah et al., 2017). In agency theory, to control banks, especially Islamic banks, so that they are suitable in carrying out sharia financing, a SSB is formed to supervise them The results of this study are in line with research conducted by Rouyer (2016) which states that SSB has no effect on financing risk. Meanwhile, this research is not in line with research conducted by Nomran et al., (2016), claiming that SSB has a negative effect on financing risk, and research conducted by Hasan et al., (2010) revealing that SSB has a negative effect on financing risk.

The Influence of the Audit Committee on Financing Risk
The results of this study indicate that the audit committee has a positive effect on financing risk. In agency theory, it states that with stricter supervision from the audit committee, it will reduce the problem of problematic financing. The audit committee can act as a party that monitors the company because the higher the proportion of the audit committee will reduce the risk of better financing to maintain the soundness of the bank from problem financing. The audit committee supervises bank financing so that financing problems do not occur (Aslam & Haron, 2021).
The result of this study is in line with research conducted by Abdeljawad and Saleh, (2020) and Aslam and Haron, (2021) which state that audit committees have a negative effect on financing risk. The audit committee plays a role in dealing with problem financing, the larger the size of the audit committee, the smaller the problem financing.

CONCLUSION
This study determines governance which includes the Board of Commissioners, the Sharia Supervisory Board, the size audit committee of Islamic banks on financial performance. The test results show that the audit committee variable has a significant negative effect on the financing risk of Islamic commercial banks. Meanwhile, the board of commissioners and the sharia supervisory board have no effect on the risk of financing sharia commercial banks. The implication of this research is that Islamic banks can strengthen audit committees so that supervision related to financing risks will be better. The limitation of this study is that it only proxies governance to be the board of commissioners, SSB and audit committee variables. Suggestions for further research are to add proxies to governance variables, namely the independent board of commissioners, bank risk committee and share ownership in Islamic banks.