The Impact of Financing Risk on Islamic Banking Performance in Indonesia

Setiawan, Iwan

doi:10.22373/share.v10i2.9400

Cited by 8 publications

(15 citation statements)

References 29 publications

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“…Bank management must be able to reduce operating costs so that banks are able to increase their profitability (Widyakto & Wahyudi, 2021). Javaid & Alalawi (2018;Al-Harbi (2019;Istan &Fahlevi (2020, andSetiawan (2021) found a negative effect between OEIR on profitability. Thus, the hypothesis proposed is:…”

Section: Efficiency and Profitabilitymentioning

confidence: 99%

Islamic Banking Profitability in Indonesia

Sutrisno¹

2023

IJFBS

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The main contribution to the income of Islamic Rural Banks (IRBs) comes from financing provided where there are two financing schemes consisting of profit-sharing financing (musyarakah and mudharabah) and profit margin financing (murabahah). The main purpose of this study is to analyze the financing scheme that affects the bank's profitability. This study will also analyze the effect of Islamic bank performance on profitability. Financial performance that is thought to have an effect on profitability is the capital adequacy ratio (CAR), financing to deposit ratio (FDR), non-performing financing (NPF), operating expense to operating income ratio (OEIR), third-party funds (TPF) and bank size (SIZE). The population in this study were 165 BPRS in Indonesia with a sample of 100 BPRS. Observation period for 4 years (2018-2021) with quarterly data. This study uses a panel data regression analysis to test the hypothesis. After being tested with Chow-test and Hausman-test, the best model from panel data regression was the fixed effect model. The results of the research showed that profit-sharing financing (PSF) and SIZE have a positive and significant effect on profitability while profit margin financing (PMF), CAR and FDR have no effect on profitability. On the other hand, financial performance which has a significant negative effect is NPF, OEIR and TPF, while CAR and FDR has a significant positive effect.

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Section: Efficiency and Profitabilitymentioning

confidence: 99%

Islamic Banking Profitability in Indonesia

Sutrisno¹

2023

IJFBS

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“…Bank profitability is not only influenced by internal factors but also external factors, namely macroeconomic indicators (Siregar et al, 2014). Internal factors of Islamic banks include liquidity, capital, financing risk, efficiency, and bank size (Johan, 2021;Pradhan & Pandey, 2018;Setiawan, 2021;Widarjono et al, 2022) while external factors include economic growth, inflation, exchange rates. , and interest rates (Al-Jafari & Alchami, 2014;Katusiime, 2021;Messai et al, 2015;O'Connell, 2022;Winny & Yulfiswandi, 2022;Yao et al, 2018).…”

Section: Literature Reviewmentioning

confidence: 99%

“…The higher the non-performing loan, the bank will require high bank reserve requirements it will suppress profitability. Setiawan (2021) adds that the financing risk in Islamic banks is influenced by bank capital, financing, economic growth, inflation, and the BI rate. Bank capital, financing, and economic growth have a negative effect on financing risk.…”

Section: Literature Reviewmentioning

confidence: 99%

“…The profitability of Islamic banks is influenced by bank capital (Alshatti, 2016;Majumder & Li, 2018), bank operating costs (Ozili & Uadiale, 2017), financing risk (Kalkarina et al, 2016;Sukmana & Febriyati, 2016), inflation (Al-Harbi, 2019;Derbali, 2021;Masood & Ashraf, 2012;Messai et al, 2015) and BI Rate (Al-Homaidi et al, 2018;Setiawan, 2021). In detail, a decrease in bank capital, operational costs, and financing risk will improve the financial performance of Islamic banks, while an increase in inflation and the BI Rate will improve financial performance (Setiawan, 2021).…”

Section: Literature Reviewmentioning

confidence: 99%

“…This study uses 12 research proxies (Al-Homaidi et al, 2018;Alshatti, 2016;Derbali, 2021;Hunjra et al, 2020;Johan, 2021;Majumder & Li, 2018;Setiawan, 2021) which is presented in Table 2.…”

Section: Nomit=β0+β1fdrit+β2carit+β3npfit+β4cirit+β5sizeit+β6gdpt+β7i...mentioning

confidence: 99%

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Covid-19 and the Performance of Islamic Banks in Indonesia

2022

ijibm

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Covid-19 has an impact on the profitability of Islamic Banks in Indonesia. Islamic banks' profitability in Indonesia tends to decline during a covid-19 outbreak. Although declining, the profitability indicators measured by Return on Asset and Net Operating Margin are more stable than Return on Equity. The average Return on Equity declined sharply in the fourth quarter of 2021. This study aims to analyze the determinants of the profitability of Islamic banks, including internal bank factors and macroeconomic indicators during the covid-19 outbreak. This study uses a quantitative approach with the fixed effect method. This study employs panel data from 8 Islamic commercial banks from 2020q1 to 2021q4. The results show that capital adequacy, disbursed financing, and operational efficiency has a negative and significant effect on the profitability of Islamic banks. Financing risk and bank size have no significant effect on the profitability of Islamic banks. Macroeconomic indicators such as economic growth, inflation, interest rates, and exchange rates have no significant effect on the profitability of Islamic banks. During the covid-19 pandemic, to increase profitability, banks need to reduce the capital and financing provided to customers. On the other hand, to increase profitability, Islamic banks need to reduce unnecessary costs so that income is not eroded. Macroeconomic indicators do not influence the performance of Islamic banks. This shows that Islamic commercial banks are more resistant to economic turbulence.

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Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021

Nasir

Oktaviani

Andriyani

2022

Banks and Bank Systems

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Banking stability plays an important role as an intermediary in the economy. Both the economy and the banking sector affect each other. This study aims to investigate the effect and response of external variables and internal bank variables on Non-Performing Loans at Conventional Commercial Banks and Non-Performing Financing at Islamic Commercial Banks. This study uses macroeconomic variables such as economic growth and inflation, while a bank’s internal variables include the Loan to Deposit Ratio, Financing to Deposit Ratio, and Capital Buffer. This study employs Vector Autoregressive Regression (VAR) to examine the time series data. The results showed that the variable Economic Growth at lag-1, Loan to Deposit Ratio at lag-1, and Capital Buffer at lag-2 significantly affect Non-Performing Loans. While the variable that has a significant effect on Non-Performing Financing is only Economic Growth at lag-1. In addition, as can be seen from the Impulse Response Function curve, Non-Performing Financing tends to be more stable toward shocks from the variables used than Non-Performing Loans. The findings suggest that banks are encouraged to be more selective in loan disbursement and maintain minimal capital adequacy by taking into account the principle of prudence and referring to the bank’s health criteria.

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The Impact of Financing Risk on Islamic Banking Performance in Indonesia

Cited by 8 publications

References 29 publications

Islamic Banking Profitability in Indonesia

Islamic Banking Profitability in Indonesia

Covid-19 and the Performance of Islamic Banks in Indonesia

Determinants of Non-Performing Loans and Non-Performing Financing level: Evidence in Indonesia 2008-2021

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