Islamic banks credit risk performance for home financing: Before and during Covid-19 pandemic

Abstract

Purpose ― This study aims to assess the home financing credit risk performed by Islamic banks in Indonesia. Methods ― A panel dynamic analysis is adopted to measure the bad loan performance before and during the Covid-19 pandemic. The observation period started from January 2016 to September 2020 with 1,881 observation periods of monthly panel data from the province level. Findings ― The study finds a difference in bad loan performance before and during the Covid-19 pandemic. Before this pandemic, inflation has a positive and significant influence on non-performing financing in real estate, rental business, and company service. However, during the Covid-19 pandemic, a substantial and positive effect of inflation is found on the bad loan for personal flat and apartment ownership. On the other hand, a significant and negative impact of inflation is found on the bad home loan for personal business shop ownership. Implication ― This analysis could trigger the government to provide financial assistance for those affected by the Covid-19 crisis. In addition to that, an Islamic bank is also expected to give financing allowances for them by providing an option of debt restructuration and rescheduling. Originality ― This paper analyses the Islamic bank’s credit risk performance for home financing before and during the Covid-19 pandemic. This issue has not been presented in the literature to the best of our knowledge.

The Determinants of Islamic Banks’ Non-Performing Financing in the Small-Medium Enterprises (SMEs) Sector

“…According to the finding, during all periods, inflation does not have a significant influence on NPF in all models. The finding is different from Fakhrunnas et al (2021), andAnto et al (2022) stated that inflation is the determinant of NPF's value in the Indonesian Islamic bank. Moreover, FDR has a positive and significant impact on NPF in investment financing.…”

“…Hence, the bank is considered to have better risk management compared to a smaller bank, particularly in Java Island. Other related financial performances, such as financing to deposit ratio and asset size of the banks, possess a pivotal role in determining the Islamic bank performance, particularly in NPF value (Sutrisno et al, 2020;Anto et al, 2022). The impact of Islamic banks' assets on banking performance is also highlighted by Ibrahim and Rizvi (2017), who employed cross countries analysis and the impact of financial performance on Islamic bank financing for SMEs studied by Aysan et al (2016) in the case of Turkey.…”

“…The finding is similar to Sutrisno et al (2020), who also highlighted the negative impact of the COVID-19 pandemic on Islamic banks' performance in Indonesia. Moreover, Fakhrunnas et al (2021) and Anto et al (2022) attempted to explain the relationship between Islamic banks' non-performing financing in home financing to regional inflation before and during the COVID-19 pandemic with adopting a dynamic panel data. However, the prior studies did not explain how Islamic banks' performance in the SME sector by covering before and during the outbreak as well as analyzing the regional approach in the case of Indonesia.…”

Investigating the Determinants of Islamic Banks’ Financing Quality: A Regional Approach

“…In total, there were 1947 observation periods. The study adapted the conceptual framework of Boyd et al, (2001) and Anto et al, (2022) to model the relationship among the observed variables:…”

“…In addition, Anto et al, (2022) argued that regional effect is important to determine the Islamic banking performance. The vulnerability to macroeconomic variable such as regional inflation and the performance of Islamic bank vary across provinces in Indonesia.…”