Stability Of Islamic Banks Research Articles

EFFICIENCY AND STABILITY OF ISLAMIC BANKING IN ASEAN: DEA WINDOW ANALYSIS

The study aims to analyze stability and efficiency of the Islamic banking industry in the Association of Southeast Asian Nations (ASEAN) region. Islamic banks are currently in the spotlight for their role in Islamic financial growth across South East Asia, especially in Indonesia. The efficiency and stability of Islamic banking is one factor in measuring the readiness of Islamic banks within the ASEAN Economic Community (AEC) framework. This research examines 12 Islamic banks in Indonesia, Malaysia, Brunei Darussalam and Thailand during the 2013-2018 period. The analysis was conducted with a non-parametric approach, namely DEA Window Analysis (DEWA). The results show that Malaysia has the highest average efficiency in four different periods with 96% and Indonesia has an average efficiency of 67%. Thailand with an average efficiency that is relatively stable at 100% and Brunei Darussalam's average efficiency is 55%, lower compared to other countries. For Islamic banks with good stability conditions are Bank Islam Malaysia Berhad and Islamic Bank of Thailand. Meanwhile, Islamic banks with unstable condition are Bank Mega Syariah and Bank Islam Brunei Darussalam. Overall, Islamic banks in ASEAN have achieved stable performance, even though most of them are still inefficient.

The effect of financial liberalization towards financial stability of Islamic banks in Malaysia

Financial liberalization will affect the stability of the financial system due to excessive risk. Liberalization effort in Islamic banks players raises the issues of the ability of how Islamic banks can survive in the financial liberalization regime. Financial liberalization induced competition and thus impact on financial stability due to excessive risk taking. Malaysia is operating in dual financial system, the effect of mediating roles of competition and interest rate between financial liberalization is expected to be vary at some extend due to shariah constraint. This paper aims to analyze the effect financial liberalization and financial stability. Structural equation model – Partial least square (PLS-SEM) is used to analyze the research model with a comprehensive data set covering the Islamic banks over 1994 -2017. The empirical results denote a significant negative impact of financial liberalization on Islamic banks' financial stability in Malaysia. Lastly, it can be concluded that this study has an implication for policymakers and the banking industry
 Financial liberalization will affect the stability of the financial system due to excessive risk. Liberalization effort in Islamic banks players raises the issues of the ability of how Islamic banks can survive in the financial liberalization regime. Financial liberalization induced competition and thus impact on financial stability due to excessive risk taking. Malaysia is operating in dual financial system, the effect of mediating roles of competition and interest rate between financial liberalization is expected to be vary at some extend due to shariah constraint. This paper aims to analyze the effect financial liberalization and financial stability. Structural equation model – Partial least square (PLS-SEM) is used to analyze the research model with a comprehensive data set covering the Islamic banks over 1994 -2017. The empirical results denote a significant negative impact of financial liberalization on Islamic banks' financial stability in Malaysia. Lastly, it can be concluded that this study has an implication for policymakers and the banking industry

Competition in dual markets: Implications for banking system stability

This paper investigates whether Islamic and conventional banks' stability is differently impacted by competition in dual markets where the two bank types operate alongside each other. Using a sample of 123 Islamic and 647 conventional banks from 29 countries for a period between 2010 and 2018, we find robust evidence that competition erodes the stability of conventional banks only. The stability of Islamic banks is not impacted specifically where religion is more prevalent. Focusing more deeply on religiosity and the institutional environment, such as the ease of doing business and economic freedom, we also find that such factors matter in differently shaping the competition-fragility nexus for the two types of banks.

FINANCIAL STABILITY AND BANK CAPITAL: THE CASE OF ISLAMIC BANKS

The purpose of this research is to empirically analyze Islamic Bank’s financial stability, which consists in assessing the possible relationship between the risk of default (measured by z-score) and capital ratios while considering specific internal bank determinants. A regression analysis is derived on an unbalanced panel data including 405 observations of 81 Islamic banks established in 22 counties during the period of 2010-2014. To this purpose, our bank-specific data are collected from the websites of each bank and Bankscope database. The results show that almost all determinants estimated in the empirical models have statistically significant effect on the stability of Islamic Banks. The regression results show that two capital ratios (Non-risk-weighted capital ratio and Risk-weighted capital ratio), banks’ Size, loans to total assets, total deposit to total assets and overhead cost to total assets represent important predictors of bank stability in Islamic banking industry. The empirical results contribute to the comprehension of the relationship between bank-specific variables as well as macroeconomic indicators and the financial stability of the banking system. On the basis of these findings, some proposals could be useful for bank regulators supervisors to enhance and maintain the strength and stability of the Islamic banking sector. Compared to other studies, that conducts a comparative analysis of Islamic and conventional banks, this paper focus only on Islamic banks, so any findings will be more relevant to their business. Hence, it attempts to fill a significant gap in the literature by better understanding the stability and soundness of Islamic banks.

Basel Compliance and Financial Stability: Evidence from Islamic Banks

We find that compliance with the Basel Core Principles (BCPs) has a strong positive effect on the stability of conventional banks, and a positive but less pronounced effect on the stability of Islamic banks. We also find that the main impact of compliance is an increase in capital ratios, whereas other components of the Z-score are negatively affected. This reflects the desire of banks to be more closely integrated into the global financial system by holding higher capital ratios. The findings also justify the 2015 decision of the Islamic Financial Services Board to publish similar principles for Islamic banks.

Dynamic relationship among the bank stability, oil, and gold prices: Evidence from the Islamic banks operating in the Gulf Cooperation Council countries

AbstractThis study uses quarterly time series data to investigate the relationship between oil and gold prices, and the financial stability of Islamic banks operating in the Gulf Cooperation Council countries for the period of 2005Q1 to 2018Q1. For this purpose, first it uses Johansen cointegration and VECM methodologies, and then it employs the newly‐developed Bayer–Hanck, Gregory–Hansen, Toda–Yamamato, and DOLS methodologies to test the robustness of the findings. Results reveal a cointegrating relationship and equilibrium‐correcting mechanism between the two commodities prices and the bank stability. Both commodities prices have positive effects on bank stability in the short run. However, oil price has a positive effect in the long run, while gold price has a negative effect in the long run. The causality results confirm unidirectional causality from oil and gold prices to bank stability in the short run, and oil price to bank stability in the long run.

Do Islamic banks more stable than conventional banks? Evidence from Indonesia

Purpose – Albeit Islamic banks are often considered more stable than conventional banks, empirical evidence to support the stability view is relatively scanty. This study, therefore, mainly aims to investigate whether Islamic banks are more stable than conventional banks in Indonesia. To enrich and support the analysis, it will also compare the factors influencing the stability of Islamic banks and conventional banks in the country. Methodology – This paper employs a dynamic panel data model using the system-GMM (General Method of Moment) estimator. The data used are quarterly data from 83 conventional banks and 11 Islamic banks in Indonesia during September 2015-June 2019 period. Findings – The study did not find any significant difference in the stability of conventional and Islamic banks. This result is presumably influenced by the small size and small market share of Islamic banks, as well as many similarities between the two types of banking systems. Furthermore, the stability of the conventional bank in Indonesia is more influenced by macroeconomic factors including interest rate, exchange rate and financial inclusions, meanwhile the stability of Islamic banks is more influenced by the banks’ specific factors such as financing growth, efficiency and risk management factors. Research limitations – The data used in the study is limited to the period from September 2015 to June 2019. The variables utilized are also limited to those taken from publicly available financial statements. Originality – This paper provides additional empirical evidence regarding Islamic banking stability in Indonesia by using the latest data. While theoretically Islamic banks are expected to be more stable than conventional banks, this study did not find strong support for the case of Indonesia during the period of observation.

THE RESILIENCE OF INDONESIAN BANKING SYSTEM AND MACROECONOMIC FLUCTUATION: ISLAMIC VIS-À-VIS CONVENTIONAL

This study aims to analyze the challenges of the dual banking system during macroeconomic fluctuations. By using the default probability mapping method and macroeconomic stress testing, we can measure the stability of the financial system through credit calculation. In addition, by using the stress test method, we can find information about the characteristics of the financial system in crises and its financial-related assistance in the financial system. Considering if a financial system can detect it early, the government can take preventative measures to minimize the consequences. The results of the study show that Islamic banking has a higher default probability than conventional banking. So it can be concluded that the current stability of Islamic banking is not better than conventional banking. Our findings suggest that inflation is only a macroeconomic variable that has a high level of sensitivity to the default probability of banks. Moreover, Islamic and conventional banking have different responses to the sensitivity of inflationary interventions.

ARE ISLAMIC BANKS SUFFERING FROM A MODEL MISFIT? COMPARISON WITH COOPERATIVE BANKS

For the first time, this study investigates whether Islamic banks, in mimicking conventional banks, have become less stable than their theoretical equivalent, which is the cooperative banks in Europe. Theoretically the interest prohibition should have pushed Islamic banks towards mutuality and profit-sharing, which have been argued to be stabilising. In practice however, the banks are pushed for growth under a debt-driven commercial banking model which is not only antithetical to the Shariah but also destabilising. This may explain why the empirical findings are still divergent in Islamic banking stability studies. Our study employs system GMM to compare the stability of 37 Islamic banks against 1,536 cooperative banks in Europe during the 2008 crisis and post-non-crisis years. Interestingly, we found consistent and significant evidence that the Islamic banks are less stable than the cooperative banks in both macroeconomic conditions. This has significant policy implications, main of which is to steer reform efforts away from refurbishing Islamic commercial banks and towards building an entirely new Islamic cooperative bank, based on the model in Europe.

The Influence of Inflation, Exchange Rates, Car And NPF to Stability of Islamic Banks in Indonesia Period 2015-2019

This study aims to see the extent of the influence of the level of Inflation (CPI), Exchange Rate (kurs), Capital Adequacy Ratio (CAR) and Non Performing Financing (NPF) on the Stability of Islamic Banks in Indonesia Period 2015-2019. To support research, we use the Vector Error Correction Model (VECM) methodology. VECM test results show that in the short term the significant effect on the level of stability are Kurs and CAR, with the direction of a negative relationship (reducing the level of stability). Meanwhile, in the long term the significant effect on the level of stability are inflation and Kurs with the direction of a negative relationship (reducing the level of stability). From the results of this study it can be concluded that the macroeconomic variables significantly affect the stability of Islamic banking, therefore the government has an important role in controlling macroeconomic turmoil to maintain Islamic banking stability. Besides that, the internal variables of the banking sector are considered to have no significant effect partially, therefore it is necessary to conduct further research with a variety of internal factors in the banking industry to prove their effects on the stability of Islamic banking

Financial soundness of single versus dual banking system: explaining the role of Islamic banks

This paper empirically investigates the financial stability of the countries having both Islamic and conventional banks versus the countries having only conventional banks. It also examines the ability of Islamic banks to provide stability to the overall financial system. The analysis is carried out for a sample of 416 banks drawn from 39 countries over the period 1995–2014. The results provide sound evidence that the dual banking system is more stable than the single banking system. Higher stability is attributed to the presence of Islamic banks in the dual banking system. Furthermore, when only the dual banking system is investigated, the results strongly confirm the greater stability of Islamic banks as compared to their conventional counterparts. Although Islamic banks are mimicking conventional banking practices, their increased interactions with the real economy, investments in real assets, non-aggressive lending profile, and limited exposures to speculative activities make them more resilient and protected.

Stability of Islamic banks in Indonesia: Autoregressive Distributed Lag Approach

Islamic banks in Indonesia are very vulnerable to the instability of their business processes because of their small market share. Moreover, based on their financial performances, Islamic banks are worse than those of conventional banks due to lower profits (ROA) and higher Non-performing financing (NPF). Our study investigates the stability of Islamic banks. We measure the stability using Z-score and NPF. Instead of an individual bank, the study applies an aggregate data of Islamic banks encompassing Islamic commercial banks along with Islamic business units. Monthly time series data, covering January 2010 to December 2018 are selected. We apply the Autoregressive Distributed Lag (ARDL) model. The findings document that the Islamic bank's specific variables affecting stability are size, CAR, and efficiency. The larger size and CAR support the Islamic bank's stability. Lower efficiency increases the Islamic bank's instability. Meanwhile, Inflation and exchange rates affect the Islamic bank's stability. Economic downturns due to inflation and depreciation of rupiah increase the instability of Islamic banks. JEL Classification: G21, G24 How to Cite: Widarjono, A. (2020). Stability of Islamic banks in Indonesia: Autoregressive Distributed Lag Approach. Jurnal Keuangan dan Perbankan, 24 (1), 40-52. DOI: https://doi.org/10.26905/jkdp.v24i1.3932

Financial Stability of Conventional and Islamic Banks: Empirical Evidence

The aim of this paper is to study the stability of Islamic banks vs. conventional banks. Unlike previous works on this topic, we used profitability, solvency, productivity, investment and risk indicators, as well as macroeconomic indicators. Likewise, we used effectiveness and efficiency indicators, determined via the SFA and DEA method respectively.The banks in our sample were selected based on their contribution to the total assets of both types of finance. This selection method allowed us to have a global idea on the effectiveness, efficiency, risk and stability of the two banking sectors.This empirical investigation revealed that Sharia-compatible banks are more efficient than conventional banks. In contrast, Islamic banks are less efficient and riskier than conventional banks. They lose on average 5.795% and 3.9413% of their assets, respectively, as credit risk and operational risk. In terms of market risk, Islamic banks are less risky than conventional banks. They lost 3,214% of their assets over the 2004-2014 period, compared with 4,119% for conventional banks.All in all, the two types of institutions were able to resist the crisis despite the slight reduction in activity and the minimal decrease in their stability scores due to the decline in activity and the prudent policy they adopted.

Does Financial Instability of Conventional Banks Affect Financial Stability of Islamic Banks in GCC Countries?

Purpose: The main purpose of this paper is to investigate the relationship between financial stability in Islamic banks and financial stability and soundness in conventional banks for five GCC countries.Design/methodology/approach: By using time series data, this study employs Pedroni’s panel cointegration to test the long-run relationship between financial stability of Islamic banks and financial stability of conventional banks in GCC countries during the period of (2000-2017). Besides, the study also employs Granger causality to test the causal link between stability of two types of banks (Islamic and Conventional). As well as employing Generalized Least Squares (GLS) to examine the effects between independent variables which are financial stability of conventional banks and their profitability, impact of period of financial crisis (2008/2009), oil prices fluctuations, banking concentration and financial sector development and financial stability of Islamic banks (as the dependent variable).Findings: The findings of this research suggest that there is a long-run, significant and positive relationship between the financial stability of conventional banks and its Islamic counterpart. At the same time, the financial stability of conventional banks is found to Granger caused the stability of Islamic banks.Originality/value: The results of the study contribute towards understanding the determinants of the financial stability of both Islamic banks and conventional banks and how they affect each other. This is important for policy ramifications by the Central Banks in GCC in terms of treating both types of banks differently to mitigate against future financial crises.

Do bankruptcy profiles of Islamic banks differ across organizational structure? evidence from Malaysia

Malaysian Islamic banks operate in different organizational structures, namely domestic, locally foreign incorporated, and development financial institutions which may have an influence on their stability. This research evaluates the bankruptcy profiles of 19 selected Malaysian Islamic banks from 2010 to 2017 and analyses the insolvency risk associated with the three different organizational structures. Using the Altman’s Z-Score Model (2000), a stability test was conducted. Finding s /Originality: the paper finds that, on average, the development financial institutions were the most stable banks, followed by foreign Islamic banks. It also finds that bigger domestic Islamic banks were situated in the safe zone as they had high Z-score values. Furthermore, asset quality ratio contributed to higher Z-score values. An appropriate asset-liability management therefore helps ensure the stability of Islamic banks in Malaysia. An effective macroprudential supervisory regime must also be in place to increase the resilience of the financial system.

Studi Empiris Kekuatan Stabilitas Keuangan Perbankan Syariah di Indonesia

The study aims to examine the stability of Islamic banking in Indonesia after the global financial crisis. This study is significant, considering the rapidly growth of Islamic banking in Indonesia and uniqueness of its operating systems and products. By using secondary data from the annual reports of the banking sector listed on the Indonesia Stock Exchange (IDX) for the period from 2013 to 2016, regression analysis with the ZSCORE function (insolvency risk) as the dependent variable and a number of predictor variables (firm-specific, macroeconomic and governance) are used as tools for achieving research objectives. To check the robustness of the research findings, a model with different specifications has been used. The results indicate that profitability and firm size have a significant influence on the insolvency risk (ZSCORE) of banks and empirical factors that influence these risks differ between Islamic banks and conventional banks.

Analisis Perbandingan Efisiensi, Kualitas Aset, Dan Stabilitas Bank Umum Konvensional Dan Bank Umum Syariah Yang Melakukan Pemisahan (Spin-Off) Di Indonesia Periode Tahun 2013-2017

This research aims to compare the efficiency, asset quality, and stability of Islamic banks that do spin-off and conventional banks in Indonesia from 2013 until 2017. The variables used are overhead cost and cost income ratio as efficiency proxy, the loan loss reserves is a proxy of asset quality, and return on asset and equity to asset ratio are proxy of stability. The sampling technique is total sampling. The population in this study amounted to 22 banks. The statistics test used are descriptive statistic, Mann Whitney test, and Independent Sample t-Test. The results showed that there were no significant differences in efficiency and asset quality, but stability was significant difference from 2013-2017.

Determinants of Islamic Banking Stability in Indonesia

This paper investigates the main determinants of banking stability in Indonesia. Totaling 11 Islamic commercial banks in Indonesia covering the period between 2013 until 2017. The measure of banking stability is Z-score, thereby allowing analysis of banking stability determinants from three complementary perspectives: competition, bank size, and capital buffer. The method to explain this study is regression. The findings indicate that competition, bank size and capital buffer improve the stability significantly when the level of them increases. The results highlight the importance of institutional quality for banking stability in Indonesia. Banking supervisors in Indonesia countries should consider the role of financial structure and institutional quality for banking stability.

APLIKASI METODE AUTOREGRESSIVE INTEGRATED MOVING AVERAGE (ARIMA) PADA PERAMALAN STABILITAS BANK SYARIAH DI INDONESIA

The international financial crisis in has increased the world's interest in Islamic banking. Forecasting the stability of Islamic Banks is important to prevent cost crisis in the future. Z-score can explain the possible bankruptcy of a bank that measures the number of standard deviations a return realization has to fall in order to deplete equity. Autoregressive Integrated Moving Average (ARIMA) has the advantage of accuracy and precision in forecasting. Analysis result showed that ARIMA (24,1,5) is the best model for forecastng the z-score of the Islamic bank with the following equation: ̇ ̇ ̇The model was used to predict predicts the z-score from September 2016 to December 2017. The result showed that z-score of Islamic banks have a downward trend until January 2017 and upward trend from June until November 2017 and then drop in December 2017. The main factor is the changes of retained earnings at each period.

Stability, efficiency and financial risks of islamic banks in conditions of instability of global financial system

In modern conditions of implementation Islamic model of banking, the issues of increasing efficiency of its activities and ensuring the long-term stability of Islamic banks come to the fore. Article analyzes the activities of Islamic banks in the post-crisis period, both in the global Islamic banking sector as a whole, and in the context of individual countries in which Islamic banks are predominantly or significantly represented, as well as financial risks that pose a threat of losses for Islamic banks. It has been concluded that the Islamic financial system is becoming one of the most important components of the international financial system, and Islamic banks within the global financial system are becoming more recognized and competitive, as they demonstrate a sufficiently high efficiency and stability of activity, a positive trend of development. Analysis found that Islamic banking has demonstrated its reliability and stability in the post-crisis period and continues to be a viable and effective mechanism of financial intermediation in the conditions of global financial system instability. The differences in the functioning and performance of Islamic banks in different countries within a single consolidated Islamic banking system have been revealed, a comparative analysis effectiveness of banking sectors a number of Muslim countries has been given, the directions of development of Islamic banking in them have been shown. Conclusions have been drawn on the need for Islamic banks to introduce effective mechanisms for monitoring and managing financial and investment risks in order to increase their ability to withstand adverse external factors, since in the future, despite the positive trends in the activities of Islamic banks, there are potential financial risks due to the growth of their current costs associated with the possibility of potential deterioration in the quality of assets and reduction in the level of profit.