Spin-off and market share in the Indonesian Islamic banking industry: a difference in difference analysis

M Nur Rianto Al Arif

doi:10.1515/mmcks-2017-0032

Abstract

Abstract According to The Act No. 21 of 2008 concerning Islamic Banking in Indonesia, the conventional banks are obligated to spun-off their Islamic business units after achieving a certain set of requirements. The spin-off requirements are: (i) reach 50% market share asset of its parents; or (ii) 15 years after the implementation of the Islamic Banking Act. This study emphasizes the impact of Islamic banks' spin-off on market share. The method used in this study is a difference in difference analysis. This technique is a quasi-experiment separate into two groups, such as the treatment groups (four spin-offs' banks) and control group (two fullfledged Islamic banks). This study used quarterly data from 2005 until 2016. The results show that, first, there is a difference in the Islamic banks' market share between pre- and post-spinoff. Second, there is a difference in the market share of spin-offs' banks between pre- and postspin- off. Third, there are there external factors that can affect the Islamic banks' market share, i.e., inflation rate, interest rate, and economic growth rate. The paper is a useful source of information that may provide relevant guidelines in helping the future development of spin-off activity in Islamic banking industry. The finding could be helpful for policymakers to create a supporting strategy to accelerate the development of Islamic banking industry. This result also could be of use for Islamic banking industries in other countries.

Highlights

In 2008, the Indonesian government established The Act No 21 of 2008 concerning Islamic Banking in Indonesia
Note: BMI (Bank of Muamalat Indonesia), BPS (Bank of Panin Sharia), BCAS (Bank of BCA Sharia), BVS (Bank of Victoria Sharia), MS (Maybank Sharia), BTPNS (Bank of BTPN Sharia). These results indicate that the spin-off policy that occurs in the Indonesian Islamic banking industry is contrary to the traditional structure conduct performance hypothesis
We attempted to examine whether the spin-off affected the market share

Summary

Introduction

In 2008, the Indonesian government established The Act No 21 of 2008 concerning Islamic Banking in Indonesia. This act is focused on regulating by Islamic banking industry in Indonesia. After the issuance of this Act, there was a significant increase in the number of Islamic banks. One of the crucial points in The Act No 21 of 2008 was the requirements that the conventional banks should separate their Islamic business units after they fulfilled a set of criteria. The spin-off rules according to this act are: (1) the Islamic business unit has achieved 50% assets of its parent bank; or (2) has reached 15 years after this Act enacted or by the end of July 2023.

Methods

Findings

Discussion

Conclusion