Sectoral Financing Concentration and Profitability of Islamic Banking in Indonesia

Abstract

This paper investigates the extent to which sectoral financing concentration affects the Islamic banks' profitability in Indonesia. As additional control variables, we include bank-specific and macroeconomic conditions. This study utilizes the aggregated financial statements of Islamic banks in Indonesia from January 2010 through December 2019 and analyzed with the Autoregressive distributed lag (ARDL) model. The results confirm cointegration evidence, demonstrating the long-term relationship between the dependent and independent variables. The results clearly indicate that sectoral financing concentration increases the profitability of Islamic banks. Furthermore, excessive financing and high non-performing financing reduce the profitability of Islamic banks. As a financial sector, Islamic banks' performance is contingent on favorable economic and macroeconomic conditions, such as high economic growth and low inflation. These findings imply that Islamic banks must employ skilled workers who are experts in related economic sectors, which is one of the primary goals of Islamic bank financing.========================================================================================================== ABSTRAK – Konsentrasi Pembiayaan Sektoral dan Profitabilitas Bank Syariah di Indonesia. Tulisan ini mengkaji sejauh mana konsentrasi pembiayaan sektoral mempengaruhi profitabilitas bank syariah di Indonesia. Sebagai variabel kontrol tambahan, kami menyertakan kondisi spesifik bank dan variabel makroekonomi. Penelitian ini menggunakan agregat laporan keuangan bank syariah di Indonesia dari Januari 2010 sampai Desember 2019 dan dianalisis dengan model Autoregressive distributed lag (ARDL). Hasil kajian mengkonfirmasi bukti kointegrasi, yang menunjukkan hubungan jangka panjang antara variabel dependen dan independen. Hasil kajian memperjelas bahwa konsentrasi pembiayaan sektoral dapat meningkatkan profitabilitas bank syariah, sementara pembiayaan yang berlebihan dan pembiayaan bermasalah yang tinggi mengurangi profitabilitas bank syariah. Sebagai institusi yang bergerak di sektor keuangan, kinerja bank syariah sangat bergantung pada kondusifitas sistem ekonomi dan kondisi makroekonomi, seperti pertumbuhan ekonomi yang tinggi dan inflasi yang rendah. Temuan ini menyiratkan bahwa bank syariah harus mempekerjakan pekerja terampil yang ahli di sektor ekonomi terkait, yang merupakan salah satu tujuan utama pembiayaan bank syariah.

Determinant of Indonesian Islam Bank’s Profitability: Lessons from the BRI Syariah case

“…In general, Islamic banks in Indonesia face high NPF because profit and loss sharing (PLS) financing, such as Mudharabah, is subject to moral hazard (Azad et al, 2018;Warninda et al, 2019). This finding supports the existing empirical studies on the case of Indonesian Islamic banking (Anggraini & Mawardi, 2019;Widarjono et al, 2022).…”

“…The high financing represents high disbursed financing, so high profits can be generated. However, high financing may generate high financing defaults and then lowers the profitability of Islamic bank (Widarjono et al, 2022). Therefore, we expect that financing may have a positive or negative effect on profitability CIR (Operating cost to Operating Income) shows operating efficiency.…”

The Effect of Logistics Performance on Manufacturing Exports: A Case Study of Asia Pacific Economic Cooperation (APEC) Countries 2010-2018

“…Gujarati & Porter (2013) states that the correlation coefficient limit is 0.8. Another opinion says if the correlation coefficient is greater than 0.85, then it is suspected that there is a multicollinearity problem (Widarjono, 2005). The multicollinearity detection results shown in Table 6 show that all models do not experience multicollinearity.…”

Analisis Faktor-Faktor Kinerja Keuangan Terhadap Profitabilitas: Studi Kasus Perbankan Syari’ah di Indonesia Tahun 2020-2022

“…Cost to Income Ratio menggambarkan besarnya rasio biaya yang dikeluarkan oleh bank terhadap suatu pendapatan bank, rasio ini mempunyai fungsi untuk mengidentifikasi efisiensi operasional pada bank (Ozili & Ndah, 2021). Pada perbankan syari'ah rasio biaya dapat menjadi indikator kinerja keuangan yang berdampak pada keuntungan yang didapat (Widarjono et al, 2022). Tinggi rendahnya nilai Cost to Income Ratio pada perbankan menunjukkan kualitas manajemen yang baik atau buruk (Amaroh & Masturin, 2018).…”