Islamic Banking Sector Research Articles

Efficiency Of Sharia Commercial Banks In Indonesia (Two-Stage Analysis)

This research is motivated by the importance of efficiency in the banking industry, especially in the Islamic banking sector which has a vital role in the Indonesian economy. This study aims to analyze the efficiency of Islamic commercial banks in Indonesia using a two-stage analysis approach. The method used is divided into 2 stages, the first stage is to measure efficiency using the Data Envelopment Analysis (DEA) method to assess the operational performance of banks. The second stage is to analyze the factors that influence efficiency through panel regression. The results of the study indicate that although there are variations in the level of efficiency between banks, factors such as bank size, capitalization, and information technology have a significant influence on efficiency. These findings are expected to provide insight for stakeholders in improving the performance of Islamic banks in Indonesia

The proposal and application of a 2-Dimensional Fuzzy Monte Carlo Frontier analysis for estimating Islamic bank efficiency

AbstractThe current study proposes a novel 2-Dimensional Fuzzy Monte-Carlo Frontier Analysis to estimate and compare the level of efficiency for a sample of 49 Islamic Banks across 25 countries worldwide over the period 2013–2021. Additionally, in the second stage, we propose a bootstrapped robust regression approach to comprehensively examine the determinants of efficiency. Our results show that there is heterogeneity in the level of efficiency within the Islamic banking sector. Furthermore, we find that the Islamic banks in the sample experienced an improvement in efficiency over the examined period. Finally, we find that bank size, bank liquidity (measured by the ratio between net loans and gross loans), and bank risk (proxied by the ratio between loan loss reserves and gross loans) have a significant and positive impact on Islamic bank efficiency. Policy implications based on our findings are provided.

Indonesian Islamic Banks’ Post-Pandemic Profitability Alignment with Sustainability Goals

Purpose — The Islamic banking sector in Indonesia has recovered from the COVID-19 pandemic. Despite the sector’s resilience to the crisis, Islamic banks have lower levels of profitability than their conventional counterparts. They therefore need to optimise profitability as well as implement sustainability practices due to their high reliance on income from intermediary functions and their core principle of protecting life and preventing harm. This study aims to optimise the post-pandemic profitability of Indonesian Islamic banks while seeking to align profitability with sustainable development goals (SDGs). Design/Methodology/Approach — The model is developed based on the combination of linear programming and financial analysis, with constraints considering banking regulations and practices. The model highlights financing product types, financing fields of business, and types of deposit products that contribute to higher profits and support sustainability practices. Findings — The recommended financing product types, financing fields of business, and deposit product types lead to profitability growth of up to 85 per cent, even better than the pre-pandemic performance of Islamic banking and the overall Indonesian banking industry. This research also finds that Islamic banks’ strategy for profit optimisation is consistent with the increasing support for SDGs. Originality/Value — There is a lack of literature discussing the alignment of Islamic banks’ profit optimisation with the SDGs. This study contributes to the literature by aligning the Islamic banks’ profitability strategy with sustainable financing. Research Limitations/Implications — The study is expected to promote the implementation of sustainability practices as well as increase the profitability of Islamic banks, drawing from evidence in Indonesia.

The Influence of Islamic Financial Literacy and Social Environment on Saving Intentions in Islamic Banking: A Case Study of Economics and Business Students at Universitas Sumatera Utara

This study examines the influence of Islamic financial literacy and social environment on students' interest in saving at Islamic banks in Indonesia. A quantitative survey of 100 students at Universitas Sumatera Utara, analyzed using Structural Equation Modeling (SEM) based on Partial Least Squares (PLS), reveals that both Islamic financial literacy and social factors, including religiosity, peer influence, and societal norms, significantly impact saving behavior, with social factors having a stronger effect. The research highlights challenges in improving students' Islamic financial knowledge and advocates for targeted educational programs. It suggests that aligning Islamic banking services with students' social and religious values can enhance saving intentions. The findings contribute to understanding how education and social environments shape financial behavior in the Islamic banking sector and propose strategies to enhance financial literacy for inclusive growth.

The Effect of Implementing Sharia Principles in the Financial Industry on Economic Stability: Case Study at Bank BTPN Syariah

This study investigates the impact of implementing Sharia principles on economic stability, using Bank BTPN Syariah as a case study. By adhering to core Islamic financial tenets such as the prohibition of interest (riba), the avoidance of excessive uncertainty (gharar), and the emphasis on risk-sharing and asset-backed financing, Bank BTPN Syariah aims to foster a more resilient and ethical financial system. Data was collected through interviews with key stakeholders, surveys of clients, and analysis of financial documents. The findings indicate that the application of Sharia principles contributes significantly to financial stability by promoting prudent risk management and ethical investment practices. The bank's focus on financial inclusion and supporting underserved communities enhances economic stability and client trust. This study reinforces existing theoretical frameworks that highlight the benefits of Islamic banking in mitigating financial risks and promoting sustainable economic growth. Practical implications for Bank BTPN Syariah include maintaining strong regulatory compliance and enhancing ethical conduct, while broader recommendations for the Islamic banking sector and policymakers emphasize the need for supportive frameworks to facilitate the widespread adoption of Sharia principles. Future research should explore the long-term impacts of Sharia-compliant practices and the role of technological advancements in this sector.

PENGARUH RELIGIUSITAS, LINGKUNGAN KERJA, DAN PENGETAHUAN AKUNTANSI SYARIAH TERHADAP MINAT BERKARIR DI SEKTOR PERBANKAN SYARIAH

The purpose of this study was to determine and analyze how religiosity, work environment, and islamic accounting knowledge influence career interest in the islamic banking sector. The data sources used in this study are primary data, questionnaires were distributed to active students of the Accounting Study Program, State University of Jakarta using Google Form. Data analysis in this study used a multiple linear regression analysis model. The results of the study showed that religiosity and work environment have an influence on students' interest in a career in the islamic banking sector. While islamic accounting knowledge does not affect students' interest in a career in the islamic banking sector

Is Islamic Banking Sustainable in Terms of Financial Performance? Empirical Evidence from GCC Countries

The aim of this study is to evaluate the Islamic banking sector with the help of financial performance criteria and to reveal whether the sector is sustainable or not. The sustainability analysis uses the latest unit root tests that take into account Fourier expansions. The study uses unit root tests, which are generally used to analyze the sustainability of public debt, with updated versions that differ from the literature and with the help of financial performance indicators of the banking sector for sustainability analysis. The study uses the data of the Islamic banking sector operating in the member countries of the Gulf Cooperation Council (GCC) for the 4th quarter of 2013 and the 2nd quarter of 2022. The quarterly data of “ROA, ROE and Net Profit Margin” are considered as financial performance indicators for sustainability analysis. Although the results of the empirical analysis show different results for each of the financial indicators of Islamic banking in the analyzed countries, in general it shows that the Islamic banking sector operating in all GCC countries except the UAE is sustainable in terms of the financial indicators used in at least one category. These results show that the development of Islamic banking is real and promising for the future. Therefore, the development of projects that contribute to the development of the Islamic financial sector and the support of this sector is an important responsibility for the relevant parties. It is expected that these results will provide important signals to the policymakers of the respective countries and contribute to the healthy development of the Islamic banking sector.

The effect of ESG scores on bank stability: Islamic vs. conventional banks

ABSTRACT This paper examines the impact of ESG (Environmental, Social, and Governance) factors on the stability of banks across different continents, focusing on both conventional and Islamic banking institutions. The empirical analysis indicates a positive influence of ESG activities on the stability of these financial institutions. Notably, the study finds that ESG scores significantly enhance the stability of both conventional and Islamic banks. The environmental pillar score, especially within the conventional banking sector, shows highly positive and statistically significant results, highlighting the benefits of environmentally responsible practices. In contrast, the social pillar is positively correlated with stability in the Islamic banking sector, suggesting that active involvement in community service and social responsibility initiatives leads to improved stability. Overall, the study emphasizes the transformative potential of ESG activities in enhancing the stability and valuation of banks by positively influencing both their external perception and internal operations.

The Role of Social Media in Building Islamic Banking Consumer Engagement: Analysing the Impact of Brand Personality Traits and Brand Love

This study aims to shed light on the role of social media in building consumer engagement and examines the impact of Islamic brand personality traits on electronic word-of-mouth and brand trust in the context of social media engagement behaviour within Islamic online banking. To assess the proposed model a sample of 665 users was recruited. The results show that the brand personality traits of Islamic brands within the context of the Islamic banking sector have a positive impact on brand trust and electronic word of mouth when mediated by brand love. This study addresses this gap in research by examining the impact of Islamic brand personality traits and brand love on electronic word-of-mouth and brand trust in Palestine. These results underline the importance of considering the alignment of brand personality traits with Islamic principles in fostering engagement and trust towards the brand.

Analisis Dinamika dan Keseimbangan Pembiayaan Bank Umum Syariah Dengan Pendekatan Error Correction Model

The study aims to analyze the dynamics and balance of financing of Islamic Commercial Banks in Indonesia during the period 2015-2023 with a focus on changes in monetary policy, real effective exchange rate, price level, profitability, and capital adequacy. The research method uses a quantitative approach with analysis techniques using the error-correction model (ECM) approach. The results showed that monetary policy, real effective exchange rate, profitability, and capital adequacy ratio have a significant influence on the financing of Islamic Commercial Banks in Indonesia in the long run. In contrast, the price level does not show a significant influence on financing in the long run. These results explain that macroeconomic factors and banking performance are crucial in determining the balance of financing in the Islamic banking sector in Indonesia. The findings suggest that changes in monetary policy, which often reflect overall economic conditions, can affect financing decisions in Islamic banks. In addition, fluctuating real exchange rates can affect the price competitiveness and financial position of banks. Profitability, as an indicator of financial health, and the capital adequacy ratio, as an indicator of a bank's ability to bear risk, were also found to have a significant influence, suggesting that the internal performance of Islamic banks is decisive in the financing provided.

The influence of psychological capital on innovative work behavior in islamic bank employees x

Background: In the face of intense business competition, organizations need continuous innovation in technology and services to remain competitive. This study explores how psychological capital—including self-efficacy, optimism, hope, and resilience—influences innovative work behaviour in the Islamic banking sector in Indonesia. This study aims to look at the effect of psychological capital on innovative work behaviors in employees of Bank Syariah X. Method: The sample used in the study was 135 employees working at Bank Syariah X. Innovative Work Behavior was measured using Innovative Work Behavior Indonesia version (2014). Psychological capital was measured using Psychological capital Questionnaire-24 (PCQ-24) (2007) with reliability coefficient 0.87. Findings: The results showed that there are two components of psychological capital that significantly influence the behavior of innovative work, namely self efficacy (β = .33, R2 = .21, p = .00) and hope (β = .21, R2 = .03, p = .00). Conclusion: This suggests that the components of self efficacy was the biggest influence on the innovative work behavior among employees who work at the Bank Syariah X. Novelty/Originality of this study: This research framework provides practical and measurable strategies that can be implemented by HR managers in the Islamic banking sector to drive innovation, improve employee performance, and ultimately enhance organizational competitiveness in the dynamic financial industry.

Dampak Kinerja Keuangan terhadap Profitabilitas Bank Syariah: Analisis Perbandingan Bank Syariah di Indonesia dan Malaysia

This study aims to analyze the effect of financial performance on the profitability of Islamic banks in Indonesia and Malaysia, using the Partial Least Squares Structural Equation Modeling (PLS-SEM) approach and secondary data from 2019 to 2023. The results showed that asset quality, as measured by Net Performing Financing, proved to have a significant influence on profitability, with the coefficient value of Islamic banks in Indonesia is 0.035 and in Malaysia is 0.05. While other factors do not have a significant effect on profitability. This shows that both Islamic banks are very vulnerable to the quality of financing. Based on the results of this study, it is expected that stakeholders, such as Islamic banks and the government, can take concrete steps to improve the profitability and stability of the Islamic banking sector. Islamic banks are expected to focus on improving asset quality, managing credit risk better, and developing effective risk management strategies. Keywords: Financial performance; Profitability; Islamic banks; Indonesia; Malaysia; PLS-SEM.

Market Dominance in Indonesia’s Islamic Banking: Critical Analysis From an Industrial Organisation Perspective

The merger of Bank Syariah Indonesia (BSI) has resulted in the formation of a substantial Islamic bank capable of effectively competing with large conventional banks. Despite this, concerns have been raised that BSI might eliminate smaller Islamic banks. This study aims to critically analyze the characteristics of market dominance in Indonesia's Islamic banking industry before and after the merger of BSI from an industrial organization perspective. We utilized several indicators, including the Concentration Ratio (CR), Herfindahl–Hirschman Index (HHI), and Melnik ratio. The findings strongly indicate market dominance in the Islamic banking industry following the BSI merger. However, we argue that the market dominance achieved by BSI fosters a positive environment by reducing fragmentation within the industry. This merger has also prompted other conventional banks to optimize their support for Islamic banks. Additionally, BSI has the potential to drive the Islamic banking industry forward. Therefore, the BSI merger represents a viable option for the government to support the development of the Islamic banking sector, while competition within the industry remains dynamic. Based on our findings, we recommend that State-Owned Banks provide further support for the development of BSI, and that other conventional banks optimize their support for Islamic banks.

Impact of Internet of Things, Cloud Computing, Artificial Intelligence, Digital Capabilities, Digital Innovation, IT Flexibility on Firm Performance in Saudi Arabia Islamic Bank

This study delves into the impact of technological advancements on firm performance within the Islamic banking sector in Saudi Arabia, focusing on the roles of Internet of Things (IoT) capabilities, Cloud Computing Capabilities (CCC), and Artificial Intelligence (AI) capabilities. It explores how these technological dimensions influence operational efficiency, customer engagement, and competitive positioning, thereby affecting overall firm performance. The research further investigates the mediating role of digital innovation in translating technological capabilities into performance outcomes and examines the moderating effects of digital capabilities and IT flexibility on this relationship. Through empirical analysis, the study demonstrates that IoT, CCC, and AI capabilities are crucial drivers of firm performance, offering significant opportunities for process optimization, service innovation, and market differentiation. Digital innovation is identified as a key mediator that enables Islamic banks to harness the full potential of these technologies, suggesting that the strategic integration of digital innovation practices is vital for realizing performance gains. Additionally, the findings highlight the importance of robust digital capabilities and a flexible IT infrastructure in maximizing the benefits of technological advancements, underscoring their role in facilitating adaptation to technological changes and fostering a culture of continuous innovation. The study contributes to the literature on technology management and banking performance by providing insights into the strategic value of technological capabilities and digital innovation within the Islamic banking context. It offers practical implications for banking executives and policymakers in Saudi Arabia, emphasizing the need for a comprehensive approach that encompasses technological adoption, innovation management, and capability development to achieve enhanced firm performance in the digital era.

Financial Hindrances to Growth: Understanding Profitability Issues in Pakistan’s Islamic Banking Sector

Purpose: The study aims to examine the banks internal factors influencing the profitability of Islamic banks in Pakistan, focusing on dimensions such as quick ratio, cash deposit ratio, capital adequacy, and bank size. Design/Methodology/Approach: A Secondary data collection method has been used in this quantitative nature of study. Using quantitative analysis with Stata software, this study analyzes data from 2015 to 2023 sourced from Islamic banks' official websites. Findings: Analysis of the study reveals that capital adequacy, bank size, and quick ratio are the factors that significantly affect Islamic bank profitability, while the cash deposit ratio shows a no significant impact. Implications/Originality/Value: By identifying critical profitability drivers, this research offers actionable insights for policy formulation and regulatory reforms, strategic planning for banks, operational efficiency, financial inclusivity, and investment attraction.

The Internal and External Determinants of Financial Performance: Evidence from Islamic and Conventional Banking Sector in Pakistan

The Internal and External Determinants of Financial Performance: Evidence from Islamic and Conventional Banking Sector in Pakistan

Perceived Financial Transparency and Loyalty in the Islamic Banking Sector of Pakistan: Exploring the Role of Trust and Age

The banking sector is the backbone of the global economic system. Islamic banking has emerged as crucial for the economic sector of all developing as well as developed countries. Investment in Islamic avenues is based on the trust and perception of local consumers. This study examines the relationship between the Perceived Financial Transparency of Islamic Banks (PFT) and Loyalty with Islamic Banks (LB). Furthermore, the study examines the mediating role of perceived trust and the moderating role of age. Moreover, the moderated mediation role of age is examined between PFT and perceived value. Data was collected from the 424 consumers of Islamic banks working in Pakistan and was analyzed through PLS-SEM. Results of the study reported a significant and positive relationship between PFT and perceived trust. Similarly, results reported that perceived trust leads to loyalty. Moreover, in terms of mediation analysis results reported that perceived trust significantly mediates between PFT and brand loyalty. Additionally, the moderation results reported that age significantly moderates between PFT and perceived trust. This study will benefit the banks and policymakers to devise policies according to the changing demands of the customers. Moreover, it will encourage conventional bank customers to invest in Islamic banks and other Islamic investment avenues.

Bursa Suq Al Sila Framework Analysis

In Malaysia, Tawarruq was introduced in Islamic financial system to replace the bai ai-inah concept. Hence, Tawarruq is the most popular product in Islamic Banking and finance sector. The ideas of Tawarruq came from the classical perspectives of jurists that want to assist the development of Islamic economic, banking and finance and replacing the old concept which is clearly prohibited in Islam. Therefore, to overcome this issues and facilitate the implementation of Tawarruq, Suq al-Sila’ (BSAS) was introduce in Islamic financial system. However, many scholars has discussed from a difference views about the implementation of Tawarruq and BSAS. This study refer to BSAS as a case study to complete this research. The objectives of this study is to understand the framework of BSAS, explain the types of commodities and specification of commodity authorizing by Bursa Malaysia Islamic Services (BMIS), participants in the BSAS platform and analyze issues that exist on the BSAS platform. Meanwhile, this research use the secondary data such as collect data from the sources from library and data from internet and primary data by interviewing Vice President, Bank Shariah Officer and Shariah Officer Hong Leong Islamic Bank to obtain primary data. This paper will explain in more detail the BSAS transaction flow and present the Shariah issues involved. The results of this study found that there are several aspects of the implementation of the BSAS platform that raise some Shariah issues. Therefore, this paper is expected to improve BSAS platform and Tawarruq principles.

The Effect of Islamic Financial Socialization and Education on Public Interest in Using Islamic Banking Services

This study used SPSS analysis tool to investigate the effect of Islamic financial socialization and education on public interest in using Islamic banking services, involving a sample of 66 respondents in two major cities in Indonesia. A survey method with a questionnaire was used to collect data, which was then statistically analyzed using SPSS. The results of data analysis showed that Islamic financial socialization and education had a significant positive impact on increasing public interest in Islamic banking services. This finding confirms that an effective educational approach in improving the understanding of Islamic finance principles, such as profit-sharing and the prohibition of riba (interest), plays an important role in supporting the growth of the Islamic banking sector in Indonesia. Consequently, Islamic banks and financial institutions need to continuously improve their Islamic financial socialization and education strategies to expand people's access to religiously-compliant financial services and to strengthen sustainable financial inclusion in the country. This study aims to explore the effect of Islamic financial socialization and education on people's interest in using Islamic banking services, using SPSS analysis tools and involving a sample of 66 respondents in two major cities in Indonesia. A questionnaire survey method was used to collect data covering respondents' perceptions and level of understanding of Islamic finance concepts. The collected data were then statistically analyzed using SPSS to evaluate the relationship between socialization and education variables with interest in using Islamic banking. The results showed that Islamic financial socialization and education had a significant impact on increasing public interest in Islamic banking services. More than 65% of respondents showed increased interest after being involved in the socialization and education program. This finding reinforces the importance of a comprehensive education strategy in explaining the principles of Islamic finance such as profit-sharing, prohibition of riba (interest), and transparency in financial practices. The implication of this study is the importance of Islamic banks and financial institutions to continue developing Islamic financial socialization and education programs as part of the effort to build public understanding and trust in Islamic financial products. This will not only support the growth of the Islamic banking sector in Indonesia, but also strengthen broader and more sustainable financial inclusion within it. As such, this study contributes to supporting sustainable economic development through the promotion and adoption of Islamic financial principles that are in line with religious values.

Assessing Islamic Banking Equity: A Synthesis of Financial Ratios and Economic Conditions

The success of companies in the banking sector is necessary for driving economic growth and state revenues. Their success is usually measured using their share prices which is a good index of their overall value. The objectives of this paper were to analyse the relationship between independent variables and share prices of Islamic Banking companies. The independent variables are the following financial ratios for indicators Return on Assets, Return on Equity, Debt to Equity Ratio, Debt to Asset Ratio, Inflation, interest rates and exchange rates. The study made use of the random effects data model to analyse the various Islamic Banking firms that are listed capital market, using data from 2020 to 2023. The results from the study were that Return on Assets, Return on Equity, Debt to Equity Ratio and Debt to Asset Ratio had a statistically significant impact on the share prices of the Islamic Banking Companies. However, Inflation, Interest, and exchange rates did not have a statistically significant effect on stock prices. The results of this analysis will be useful for stakeholders in the Islamic banking sector as they know the most critical factors in determining the market’s valuation of a companies performance and results to help guide strategies for the future.