Credit Risk Determinants: Specific and Macroeconomic Factors of Islamic Banks

Purpose The COVID-19 pandemic has affected economic activity both globally and nationally, which also has an impact to banking sector and Islamic banking is no exception. This study aims to see how the impact of Islamic bank financing in seven sectors affected by the COVID-19 to the credit risk of Indonesian Islamic banks. In addition, this study also tries to see whether the proportion of mudharabah-musharaka or profit-loss sharing (PLS) financing also affects credit risk in Indonesian Islamic banks. Design/methodology/approach This study uses fixed effect panel data regression over the period 2011–2020. Findings The results of this study show that wholesale and retail trade financing will increase credit risk in Indonesian Islamic banks as a policy implication. In terms of the proportion of PLS financing, it shows that a larger share of PLS financing will reduce credit risk in Islamic banks. Originality/value This paper demonstrates that despite the industry’s perception of PLS as riskier than murabaha-based instruments. According to the research, PLS financing will lower credit risk in Islamic banks. This study found that PLS contributes to overall economic stability by shifting the function of Islamic banks from a simple lending body to an active market catalyst/manager/consultant to market players seeking financial aid.

<p class="IABSSS"><strong>Purpose</strong> - This study aims to analyze the effect of inflation, gross domestic product (GDP), capital adequacy ratio (CAR), and financing to deposit ratio (FDR) to non performing financing (NPF) at Islamic Commercial Banks in Indonesia.</p><p class="IABSSS"><strong>Method</strong><strong> </strong>- The research approach used is a quantitative approach. Determination of samples is done by purposive sampling method. The data used is secondary data, obtained from publication reports on the official website of each Sharia Commercial Bank, Bank Indonesia, and the Central Statistics Agency. The population in this study were all Islamic Commercial Banks registered in the Statistics of Islamic Banking in Indonesia for the period 2013-2017. Based on the specified criteria, five Sharia Commercial Banks were obtained as research samples. This study uses panel data regression analysis with the Fixed Effects Model approach which is processed through the Eviews 10 program.</p><p class="IABSSS"><strong>Result</strong><strong> </strong>- The results of hypothesis testing show that partially Inflation has a positive but not significant effect on NPF, GDP has a significant negative effect on NPF, CAR has a negative but not significant effect on NPF, and FDR has a significant negative effect on NPF. Simultaneously inflation, GDP, CAR, and FDR have a significant effect on NPF.</p><p class="IABSSS"><strong>Implication</strong> - This study uses all data from commercial Islamic bank.</p><strong>Originality</strong> - This study analyzes the determining factors that influence financing risks from both internal and external factors.

The main problem in this research is the slowdown in the growth of Islamic banking in Indonesia. This is thought to be caused by the soundness of the banks themselves and the decline in banking performance. This Study selects the dependent variable of the performance of Islamic banking, namely the ratio of Financing to Deposit Ratio (FDR) which represents the level of liquidity, and Return on Assets (ROA) which represents the profit of Islamic banking. As for the independent variable, this study examines financial ratio which is included in the bank health assessment ratuis according to the Bank Indonesia version which refers to the elements of Capital, Assets, Quality, Management, Earnings, Liquidity, and Sensitivity, Shile in this study applying financial ratios commonly used to measure the financial performance of banks, including Capital Adequacy Ratio (CAR), Operating Costs to Operating Income (BOPO), Net Interest Margin (NIM) in conventional banks, Net Operation Margin (NOM) in Islamic banks, Non Performing Loans (NPL) in conventional banks and Non-Performing Financing (NPF) in Islamic banks. Therefore, it is necessary to re-examine the consistency of these variables in influencing banking performance, especially Islamic banking in Indonesia. The method used in this research is panel data regression analysis. This method is also used to obtain valid and reliable data so that it can be developed as the knowledge that can be used to understand, solve and anticipate problems in organizations, especially sharia taxis. The purpose of this study was to determine and analyze the effect of the soundness ratio of Islamic banking as measured by bank health ratios, namely CAR, NPF, BOPO, and NOM on Islamic Banking Financial Performance as proxied on the level of bank profit or profitability (ROA) and the level of liquidity (FDR). The results of this study, CAR has a positive effect on ROA. Meanwhile, FRD CAR has a negative effect. NPF has a negative effect on ROA and FDR. NOM has a positive effect on ROA. Meanwhile, For FDR NOM has a negative effect. BOPO has a negative effect on ROA and FDR. Keywords: Islamic Banking, CAR, NPF, BOPO, NOM, ROA, FDR.

Murābaḥa financing is a type of financing that dominates the financing contract on Islamic banking in Indonesia. This shows that financing on the basis of sale (murābaḥa) has a greater contribution than the financing of the basis for the profit and loss sharing (muḍāraba and muṣāraka). The purpose of this study is to determine the factors that affect the financing of murābaḥa in the Islamic Commercial Banking in Indonesia by using variables Third Party Fund (DPK), Capital Adequacy Ratio (CAR), Financing to Deposit Ratio (FDR), Non-Performing Financing (NPF) and Return on Assets (ROA). The population in this study is the performance of Islamic Commercial Banks in Indonesia in the period of January 2014 to June 2016. The data used in this research is secondary data and sample selection by using purposive sampling method. The analytical tool used in this research is multiple linear regression analysis at significantly the rate of 5%. The results of this study indicate that the variable DPK, CAR, FDR, NPF, and ROA simultaneously have an influence on Murābaḥa. Coefficient determination test results show that the five independent variables affect the dependent variable amounted to 87.6% and the remaining 12.4% is influenced by other variables. Partially DPK, CAR, FDR, and ROA have a positive and significant effect on the financing Murābaḥa. While the NPF has no influence on Murābaḥa financing.

Murabaha financing is a type of financing that dominates the financing contract on Islamic banking in Indonesia. This shows that financing on the basis of sale (murabaha) has a greater contribution than the financing of the basis for the profit and loss sharing (mudharaba and musyaraka). The purpose of this study is to determine the factors that affect the financing murabaha in the Islamic Commercial Banking in Indonesia by using variables Third Party Fund (DPK), Capital Adequacy Ratio (CAR), Financing to Deposit Ratio (FDR), Non Performing Financing (NPF) and Return on Assets (ROA). The population in this study is the performance of Islamic Commercial Banks in Indonesia in the period of January 2014 to June 2016. The data used in this research is secondary data and sample selection by using purposive sampling method. The analytical tool used in this research is multiple linear regression analysis at significantly the rate of 5%. The results of this study indicate that the variable DPK, CAR, FDR, NPF, and ROA simultaneously have an influence on murabaha. Coefficient determination test results show that the five independent variables affect the dependent variable amounted to 87.6% and the remaining 12.4% is influenced by other variables. Partially DPK, CAR, FDR, and ROA have a positive and significant effect on the financing murabaha. While the NPF has no influence on murabaha financing.

This study aims to analyze the effect of Third Party Funds (TPF), Capital Adequacy Ratio (CAR), Bank Age, Non Performing Financing (NPF), and Return On Assets (ROA) on the level of risk taking of Islamic banks in Indonesia and Malaysia. Risk taking in this study is proxied by Financing Asset Ratio (FAR) and Financing to Deposit Ratio (FDR). The data used in this study are the cross section data of Islamic banks in Indonesia and time series data of 2010 to 2017 from each of the financial statements of Islamic banks in Indonesia and Malaysia which act as the object of this research. This research uses panel data regression method. Based on the analysis, The TPF and the CAR has big impact on the Credit and Liquidity Risk in both observed country. CAR significantly influenced the credit risk, when the CAR goes up, it is resulted from the addition of equity due to the rise of NPF. Moreover, in the liquidity risk in Indonesia is caused by the mismatch nature of Indonesian funding side. On the other hand, the credit risk in Malaysia rises whenever the TPF increase and the liquidity is caused by the deposit taking and risk taking activity. The introduction of investment account by the Bank Negara is among the factors of significant as well as negative result of it. This paper urges the OJK to speed up the implementation of Investment Account product in Indonesian Islamic bank since it will reduce the liquidity risk and at the end will decrease the credit risk.

The study analyzes macroeconomic and bank specific determinants of credit risk in Islamic and Conventional Banks. Multivariate Regression analysis is applied on the sample of 15 conventional banks and 13 Islamic Banks in Malaysia over the period between 2000 and 2010. The finding shows that the banks specific determinants of credit risk are uniquely influenced the credit risk formation of Islamic and Conventional banks. The study found that risky sector financing; regulatory capital (REGCAP) and Islamic Contract are significant to credit risk of Islamic banks. For Conventional Banks, loan loss provision, debt-to-total asset ratio, REGCAP, size, earning management and Liquidity are significant factors influencing credit risk. As for macroeconomic factors only Inflation and M3 are significant to credit risk for both Islamic and Conventional banks.

Islamic banking risks are influenced by many factors, facing internal and external banking risks. In this study, the internal banking risks are represented by Credit risk as measured by Non-Performing Financing (NPF) and liquidity risks as measured by Financing to Deposit Ratio (FDR). At the same time, world oil prices and exchange rates represent the external banking risks. World oil price data is obtained from OPEC Price, and exchange rate data is obtained from the Pacific Exchange Rate Service. While the data from NPF and FDR is obtained from BI Statistics of Sharia Banking. The results of this study found that world oil prices have a significant effect on credit risk and liquidity risk in Islamic banking. In contrast, the exchange rate only has a significant effect on credit risk in Islamic banking.

Purpose: The aim of this research is to identify and analyze the financial distress of Islamic banks in Indonesia during the pandemic and economic recession through an assessment of NPF, FDR, GCG, ROA, CAR, bank size, inflation, and interest rates. This research uses Islamic bank panel data for 2018-2022 and is quantitative research.Methodology/approach: Data analysis using Stata 17, through panel data regression and the data analysis method in this study using Ordinary Least Square (OLS). Population of this research is 10 Islamic banks in Indonesia with a total observation of 50 firm-years and the data used are secondary data of annual reports of Islamic banks. Results/findings: The findings show that the financial distress of Islamic banks is influenced by FDR, ROA, and CAR, and is not influenced by NPF, GCG, bank size, inflation, and interest rates. Islamic banks must carry out efficiency, restructuring, and manage the capital adequacy ratio so that it does not have an impact on the company's financial performance.Conclusions: The financial distress in Islamic banks in Indonesia during the COVID-19 pandemic and economic recession is significantly affected by the Financing to Deposit Ratio (FDR), Return on Assets (ROA), and Capital Adequacy Ratio (CAR). Limitations: The limitations of the study are that the sector studied is only Islamic banks in Indonesia so that the variables that influence are not comprehensive, allowing other variables to play a role in the financial distress of Islamic banks in Indonesia.Contribution: This research contributes by analyzing the performance of Islamic banks in Indonesia during the COVID-19 pandemic and in the face of economic recession. The widespread impact across various sectors, particularly the financial sector, underscores the need for government support through policies and regulations to ensure the stability of Islamic banks.

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This study examines the influence of internal and external factors to Return On Equity (ROE), study on sharia banks 2010-2014 period. The effectiveness of the management of Islamic banks in the operations will affect profit and equity of the bank. Return On Equity (ROE) describe profitability of an entity. In the theory of profitability there are 2 factors that affect the profitability of the bank, namely internal factors and external factors. Internal factors in this research is the Capital Adequacy Ratio (CAR), Non Performing Financing (NPF), Finance to Deposit Ratio (FDR), Operating Expenses Operating Income (BOPO) and external factors in this study are the exchange rates and inflation. While profitability in this study using a proxy Return On Equity (ROE). This study uses secondary data with samples of most Islamic banks are seven Islamic banks in Indonesia period 2010 to 2014. The results showed that the CAR, BOPO, FDR, EXCHANGE negative and significant effect on ROE. NPF negative but insignificant effect on ROE on Islamic Banks in Indonesia. While the inflation variable and not significant positive effect on ROE on Islamic Banks in Indonesia.Keywords: Return on Equity (ROE), Capital Adequacy Ratio (CAR), Non Performing Financing (NPF), Finance to Deposit Ratio (FDR), Operating Expenses Operating Income (BOPO), Exchange Rates, Inflation, Sharia Banks

This present paper explores the islamic banks in Indonesia. More detail, This study describe the determinant of islamic banks profitability on the view of financial ratios. Employing a multiple linear of regression, the result reveal that the profitability of islamic banking proxied by return on assets (ROA) is determined by the Capital Adequacy Ratio (CAR) which represents the availability of cash capital (current) to guarantee the return on financing, and Non Performing Financing (NPF) which represents the level of financing risk. Meanwhile, The third-party funds proxied by Financing to Deposit Ratio (FDR) has not been proven to determine the profitability of islamic banks in Indonesia. In the end, this study concluded that the availability of cash capital (current) to guarantee the return of financing, and the level of financing risk is a determinant of the profitability of islamic banks in Indonesia. More detailed explanation can be seen in the discussion section. Key word : Islamic Bank ; Profitability , R eturn on asset (ROA); Capital Adequacy Ratio (CAR); Non Performing Financing (NPF); Financing to Deposit Ratio (FDR)

This research aimed to know and analyze the influence of components of Risk based bank rating method (risk profile, Good Corporate Governance, earnings, and capital) to profitability of Islamic Bank in Indonesia, measured by Return On Assets (ROA). Whereas the ratio used in this research to represent the components of RGEC are risk profile measured by Non Performing Financing (NPF) and Financing to Deposit Ratio (FDR), implementation of GCG by composite score of GCG, earnings by Operational Efficiency Ratio (OER), and capital by Capital Adequacy Ratio (CAR). Sample of this research are 11 Islamic Banks in Indonesia from 2011 to 2014. The analysis techniques used is multiple linear regression. Based on the analysis result, it can be concluded that NPF, FDR, GCG, OER, and CAR had simultaneous significant effect to ROA. Partially, NPF, FDR, and BOPO have significant effect to ROA. However, CAR and GCG don’t affect ROA significantly.

Research Aims: This research aims to identify the influence of MSMEs and non-MSMEs financing diversification, as well as financing restructuring, on non-performing financing (NPF). Methodology: This study utilizes a quantitative research method with secondary data, including Asset Quality Reports and Financial Ratio Reports accessed through the Financial Services Authority (OJK) from 2018 to 2022 for 10 Islamic commercial banks in Indonesia on a quarterly basis. Non-Probability Sampling was used as the sampling technique, and data analysis was conducted using panel regression with the Fixed Effect Model through Eviews 12 software. Research Findings: The empirical results indicate that both MSMEs and non-MSMEs credit diversification do not have a significant impact on reducing credit risk in Islamic banks in Indonesia. However, restructuring has an impact on non-performing financing in Islamic banks in Indonesia. Theoretical Contribution: This study contributes to the literature by examining the relationship between diversification of MSME and non-MSME financing and financing restructuring. With this research, it is hoped that Islamic banks will pay more attention to minimizing problematic financing to maintain the stability of their financial performance. Research limitation and implication: In practical terms, these findings suggest that policymakers may consider implementing a concentration strategy for financing in specific sectors. If diversification is to be continued, further policy adjustments may be necessary.

This research aimed to know and analyze the influence of components of Risk based bank rating method (risk profile, Good Corporate Governance, earnings, and capital) to profitability of Islamic Bank in Indonesia, measured by Return On Assets (ROA). Whereas the ratio used in this research to represent the components of RGEC are risk profile measured by Non Performing Financing (NPF) and Financing to Deposit Ratio (FDR), implementation of GCG by composite score of GCG, earnings by Operational Efficiency Ratio (OER), and capital by Capital Adequacy Ratio (CAR). Sample of this research are 11 Islamic Banks in Indonesia from 2011 to 2014. The analysis techniques used is multiple linear regression. Based on the analysis result, it can be concluded that NPF, FDR, GCG, OER, and CAR had simultaneous significant effect to ROA. Partially, NPF, FDR, and BOPO have significant effect to ROA. However, CAR and GCG don’t affect ROA significantly.