Abstract
The Indonesian banking industry has developed technology innovation will provide financial services to generate income. The purpose of this paper is to compare the service activity and to explore the effect of the service activity on risk in Islamic and conventional banks. By analyzing 12 Islamic banks and 38 conventional banks in Indonesia during the period from 2015 to 2017, we use Structural Equation Modelling (SEM) with path analysis and multiple group analysis. The result shows that the service activity of Islamic banks appears to be more variable than conventional banks. The risk level of Islamic banks is more stable than conventional banks. For Islamic banks, non-financing income has a significant negative effect on risk, commission income and trading income have a significant positive effect on risk, and other non-financing income has no effect on risk. However, no significant effect has been observed between non-interest income, commission income, trading income, other non-interest income and risk level in conventional banks. This finding indicates that the combination of funding activities, lending activities, and service activities allows Islamic banks to obtain the diversification income till reduce risks. For conventional banks, diversification in activities contributes to the higher volatility of bank revenue.
Highlights
The development of information technology can change the behavior of everyday society in conducting financial transactions with banks
This study aims to compare risk and service activities in Islamic banks and conventional banks in Indonesia as well as to analyze the impact of banking service activities on risks, as an independent variable consists of non-interest income, commission income, trading income and other non-interest income and as a dependent variable measured by the debt to equity ratio between Islamic banks and conventional banks in Indonesia during the period 2015-2017
This study examines the impact of service activity on risk in Islamic banks and conventional banks during the period 2015-2017
Summary
The development of information technology can change the behavior of everyday society in conducting financial transactions with banks. In this era, the public would require effective and efficient financial transaction services. Financial transaction services depend on customer demand. As in other service industry, must accommodate all customers' needs so that compete in the industry [21]. Financial transaction services open new innovations that must be supported by professional human resources and information technology that has been prepared in order to improve the quality of banking services and facilities. The innovation of banking products and services shows that the bank is increasingly diversified its business activities
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