The Effect of Covid-19 Pandemic on the Soundness of Islamic Banks in Indonesia

Abstract

The purpose of this study is to answer the debate regarding the impact of the Covid-19 pandemic on the soundness of Islamic banks in Indonesia. In this study, the soundness of Islamic banking is measured using the RGEC method. The object of the research is focused on all Islamic banking companies operating in Indonesia with a total population of 14 companies. The data is the annual reports of the company in the period before and after the pandemic, namely the 2019 and 2020 periods. After the sample selection process was carried out, only 12 companies remained that met the criteria for further analysis. The data analysis technique used descriptive statistical analysis and different tests with paired sample t-test and Wilcoxon signed-rank test which had previously passed the normality test. The results showed that only the capital adequacy ratio indicator experienced significant differences before and after the Covid-19 pandemic in Indonesia, while the other three indicators showed no significant differences. This indicates that Islamic banking is still quite capable of overcoming the impact of the pandemic so that it does not have a serious effect on the soundness of Islamic banking.

Are Islamic Banks Still Sound Amidst Pandemic?

“…Hence, Indonesia's Covid-19 pandemic has affected the capital aspects of Islamic banks. These results are inconsistent with some previous studies from Azmi et al(2021), Candera andIndah (2021), andSiswantoro (2022), who found that there was no difference in the ratio of CAR before and during the Covid-19 Pandemic. But, this result is consistent with Muhammad & Triharyono (2019) that CAR was different before, during, and after the global financial crisis.…”

“…It indicates that the Covid-19 Pandemic in Indonesia does not affect the profitability aspects of Islamic banks. This result is consistent with several previous studies, i.e., by Sutrisno et al (2020), Siswantoro (2022), and Utami and Makhrus (2022), for the ROA ratio. However, the NOM ratio of these results is inconsistent with several studies, Sutrisno et al (2020);and Sugiharto et al (2021).…”

“…It indicates that the Covid-19 Pandemic that occurred in early 2020 in Indonesia has had no impact on the ability of Islamic banks to channel financing from the total third-party funds raised. This result is consistent with several previous studies from Siswantoro (2022) and Utami and Makhrus (2022), which also found no difference in the ratio of FDR before and during the Covid-19 Pandemic. Bank Indonesia's (2020) statement in the 2020 Islamic Economy and Finance Report showed that despite a slowdown in lending in general due to the Pandemic, Islamic financing disbursements are still resilient and growing positively.…”

“…It shows that the Covid-19 Pandemic in Indonesia has had no impact on the ability of Islamic banks to manage non-performing financing. These results are consistent with the research of (Sutrisno et al, 2020); (Azmi et al, 2021); (Siswantoro, 2022); Utami and Makhrus (2022);and Sugiharto et al (2021), who also found that there was no difference in the NPF ratio before and during the Covid-19 Pandemic. However, this result opposes Rifqi & Condro (Muhammad & Triharyono, 2019), who found a difference in NPF before, during, and after the global financial crisis of 2008.…”

“…These studies proved that Islamic banks in Indonesia are deemed to have good resilience in facing economic shocks due to the pandemic. Therefore, based on several previous studies that researched comparing the health levels of Islamic banks before and during the Covid-19 Pandemic Sutrisno et al (2020); Azmi et al (2021); Candera and Indah (2021); Siswantoro (2022); Utami andMakhrus (2022), andSugiharto et al (2021) then the hypothesis in this study can be written as follows: H1: There is no difference in the Islamic bank's soundness level before and during the COVID-19 pandemic in Indonesia.…”