Assessing bank performance measurement in islamic banking industry

Mokhamad Ikhsan Ramdhoni,W Martiningsih,I Saraswati,M.I Santoso,R Wiryadinata,S Praptodiyono

doi:10.1051/matecconf/201821804020

Abstract

The Indonesian Islamic banking industry, attaining the age of more than 25 years tend to adopt conventional approach to measure its bank performance. Although this method could well inform the performance of the bank financial, this measurement fails to inform both the characteristics of Islamic banking. This study is designed to evaluate three Islamic bank performance measurements: Sharia Maqashid Index, Sharia Conformity and Profitability (SCnP), and CAMELS. Sharia Maqashid Index approach has three variables: educating individual, establishing justice, and public interest. SCnP approach has two variables: Sharia conformity and profitability. While CAMELS approach has five variables: Capital, Asset Quality, Management, Earning, and Liquidity. This study uses data from Islamic Commercial Banks registered on Bank Indonesia from 2012-2016. The data analytical technique is quantitative method using descriptive approach. The results of the study using Sharia Maqashid Index reveal that there is a difference in Islamic Commercial Banks performance. The used of SCnP reveals that none of Islamic Commercial Banks on upper right quadrant. The used of CAMELS reveals that all of Islamic Commercial Banks in Indonesia have Fairly Healthy predicate. These findings suggest that, to provide a comprehensive picture of its performance, the Islamic banks need to adopt both Sharia-based as well as financial based measurement.

Highlights

The world is entering the era of Industrial Revolution 4.0
Indonesia's Islamic banking is over 25 years old, but in its age of more than a quarter century it has not had its own performance measurement tools and is still adopting conventional measuring instruments and limited only to financial ratio measurement
The dimension is translated into several measurable behaviors called Elements (E). This measurement of performance that have been developed from the framework of Maqashid Sharia and weighted so that the concept can be used to measure the performance of Islamic banking by weighting each Objective (O) and Element (E) [5]

Summary

Introduction

The world is entering the era of Industrial Revolution 4.0. This applies to the banking industry where they are competing to utilize technology to provide excellent service to its customers. Most Islamic banks rely on financial benchmarks to measure their performance results, many stakeholders cannot clearly see the difference between Islamic and conventional banking. Based on the above background, this study is intended to assess three models of bank performance measurement, namely the measurement of Islamic banking performance using Sharia Maqashid Index model, Sharia Conformity and Profitability model as well as CAMELS model. Such a study is important to assist the Islamic banking industry to evaluate their business performance and subsequently developing appropriate competitive strategy

Literature review

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Result