Stability Of Islamic Banks Research Articles

Pengaruh Kebijakan Restrukturasi Pembiayaan Terhadap Stabilitas Perbankan Syariah di Indonesia: Bukti Empiris di Tengah Pandemi Covid 19

This study aims to analyze the effect of financing restructuring policies through regulation No. 11/ POJK.03/2020 on Islamic banking stability in Indonesia. This study uses panel data from the 6 largest Islamic banking in Indonesia for the period September 2018 to December 2020. This study uses the REM model as the best estimation model. The results showed that the financing restructuring policy had a negative and significant effect on the stability of Islamic banking ini Indonesia. Meanwhile, Non-Performing Financing (NPF) and Gross Domestic Product (GDP) as control variables have a possitive significant effect on Islamic banking stability. Meanwhile, inflation has a negative and significant effect on the stability of Islamic banking. This study did not find the effect of bank size on the stability of Islamic banking in Indonesia.

Digital payment and banking stability in emerging economy with dual banking system

Previous studies provided limited conclusions on the relationship between digital payment and financial stability, particularly in an emerging economy with a dual banking system in which Islamic banking operates in parallel with its conventional counterpart, such as Indonesia. Therefore, this study aims to examine the impact of digitalisation on financial stability, particularly banking stability, in Indonesia. It uses Vector Error Correction Model (VECM) and Vector Autoregressive (VAR) models to investigate the relationship using monthly data during December 2013–July 2021 period. The digital payment transaction is proxied by payment penetration ratio (PPR); meanwhile financial stability is proxied by the value of Z-Score for the Indonesian banking industry. It also conducts a robustness check using Autoregressive Distributed Lag (ARDL) model. The study found a cointegrating relationship between PPR and Z-Score, suggesting that digital payment transactions have an equilibrium and long-run relationship with banking stability in Indonesia. Further examination shows a one-direction causality from digital payment to banking stability and a positive short-run relationship between the variables. Interestingly, despite being the largest Muslim country globally, the estimation result shows no significant causality between digital payment and Islamic banking stability in Indonesia. While this might be due to the small size of Islamic banking in the country, it is expected that the impact will be more significant as Islamic digital banking starts to emerge and gain strong support from society and government in the post-covid period. Overall, our findings support policies promoting a more supportive regulatory ecosystem for a resilient banking and financial system in an emerging economy with a dual banking system.

PENGARUH KEBIJAKAN RESTRUKTURISASI PEMBIAYAAN, UKURAN BANK, NON PERFORMING FINANCING, DAN PRODUK DOMESTIK BRUTO TERHADAP STABILITAS PERBANKAN SYARIAH DI INDONESIA: BUKTI EMPIRIS DI TENGAH PANDEMI COVID 19

Abstract: This study aims to analyze the effect of financing restructuring policies through regulation No. 11/ POJK.03/2020 on the stability of Islamic banking in Indonesia. This study uses panel data from the 6 largest Islamic banks in Indonesia for the period September 2018 to December 2020. This study uses the Random Effect Model as the best estimation model. The results showed that the financing restructuring policy had a negative and significant effect on the stability of Islamic banks. Meanwhile, Non-Performing Financing (NPF) and Gross Domestic Product (GDP) as control variables have a significant positive effect on the stability of Islamic banks. Meanwhile, inflation has a negative and significant effect on the stability of Islamic banks. This study did not find the effect of bank size on the stability of Islamic banking in Indonesia.
 Keywords: Islamic Banking Stability, Financing Restructuring

The financial stability of Islamic banks and sukuk market development: Is the effect complementary or competitive?

The purpose of this study is to examine the effect of the development of a market for sukuk (Islamic bonds) on the financial stability of Islamic banks. In addition, we test a hypothesis on whether the link between sukuk markets and Islamic banks (IBs) with respect to financial stability is determined by competition or complementarity. This study applies a dynamic panel system–generalized method of moments to explore the effect of sukuk market development on IBs' financial stability. We employ a Z-score model, the optimal model for measuring IBs’ financial stability, and measure sukuk market development by total sukuk holdings issued. The sample consists of all the Islamic financial institutions in operation in the sample countries (Malaysia, Saudi Arabia, Indonesia, Turkey, and Brunei). Our findings demonstrate that sukuk market development positively affects the financial stability of Islamic banks, by expanding complementarity between Islamic banks, encouraging them to maintain stability.

CAMELS, risk-sharing financing, institutional quality and stability of Islamic banks: evidence from 6 OIC countries

PurposeThis study aims to examine the nexus between CAMELS, risk-sharing financial performance and Islamic banks' stability. It also attempts to assess the conditioning effects of institutional quality in the relationship between risk-sharing contracts and the stability of Islamic banks.Design/methodology/approachThe quantitative research design was employed using secondary data from 20 Islamic banks in six countries over the period 2007–2019. The study utilized the feasible generalized least squares method for the analysis.FindingsThe results indicate that not all CAMELS variables support the stability of Islamic banks. The musharakah contract induced stability of the banks, whereas mudarabah financing reduced it. The interaction between risk-sharing finance and the quality of institutions suggested that the mudarabah contract via institutional quality raises the stability of Islamic banks. On the other hand, the quality of institutions encourages the banks to offer more musharakah, but it leads to an increase in their risk-taking. We show the impact of changes in risk-sharing variables on stability amplified by institutional quality. The results were robust when alternative measures of stability were used.Practical implicationsVarious stakeholders in banking activities could learn from the results of this study. Islamic banks could improve their positions in terms of screening for risk-sharing financing. They could also leverage more on musharakah, as it promotes stability and could generate more returns for the banks. The mudarabah financing can be improved if there is a proper evaluation of entrepreneurs. Policymakers would learn more about the importance of institutional quality, as it provides a friendly environment for both mudarabah and musharakah businesses to thrive. This could increase the participation of Islamic banks in the real economy.Originality/valuePrevious studies concentrated on the effects of CAMELS on the profitability of Islamic banks. This study shows that CAMELS alone might not necessarily capture the financial performance of Islamic banks. Therefore, the risk-sharing financing variables are included alongside CAMELS to determine their effects on stability. Second, unlike the past research, this study used the quality of institutions to moderate the nexus between risk-sharing financing and the stability of Islamic banks.

Profit-Loss Sharing Financing and Stability of Indonesian Islamic Banking

The study analyzes the extent to which Profit-Loss Sharing (PLS) financings with some control variables influence the stability of Islamic banks. Because of different scheme financings between Musharakah and Mudarabah, we also split them. This study measures stability utilizing Z-score. We employ the Autoregressive distributed lag (ARDL) model using monthly aggregate data of Islamic banks, covering from 2010:M1 to 2019:M12. This study is among studies who are pioneer in analyzing the role of PLS financing on stability. The findings shows that the PLS financings strengthen Islamic banks' stability for which Musharakah financing enhances the stability but Mudarabah financing weakens stability. Evidence also underlines that bank capital adequacy ratio (CAR) support stability but non-performing financing (NPF) and inefficiency lower stability. Macroeconomic conditions persistently support stability for which economic upturn fortifies stability but sharp depreciation weakens stability. This study implies that, in addition to Murabahah, Islamic banks have to diversify their financing on Musharakah.

Does Islamicity matter for the stability of Islamic banks in dual banking systems?

Investigating the relation between the institutional environment and bank stability has become the focus of recent empirical works. Since its emergence, the Islamic segment of dual banking systems has expanded faster than the conventional segment, albeit growth remains somehow impeded due to many factors. In most countries, the business environment is centred on the principle of "maximisation of owners' wealth", which may have stripped Islamic banks of their intermediary function to pursue activities in greater congruence with the alfalah-Maqasid Sharia approach framework. This study examines whether Islamic banks are more stable in countries where the environment is overwhelmed by Islamicity than in countries with less Islamicity. A sample of Islamic and conventional banks from 14 Muslim majority countries is employed for the 2016–19 period. The results suggest that Islamicity has a neutral effect on bank stability and that Islamic banks do not find higher Islamicity of the environment a supporting factor for their resilience. Our findings reject the 'Islamicity-stability" hypothesis for Islamic banks, suggesting that the Islamicity of the environment is irrelevant in dual banking systems. From a different angle, Islamic banks may seem to be a "disguised" version of conventional banks.

Dual Banking System Stability Index in the Shadow of COVID-19 Pandemic

The financial system is categorized as stable if there is no excessive volatility from financial pressures or crises. The IMF indicates that the crisis is not only related to one element but more than two or three elements of the crisis. The banking system's stability is measured by the banking stability index, gauging the effectiveness of monetary policy and financial risk. This study aims to measure the stability of the Indonesian banking system in the dual banking system model. The indicator to measure banking stability used the Z-score statistic based on fluctuations of Return on Assets for each type of bank. The Markov Switching Vector Autoregressive (MSVAR) model method was used to analyze the volatility of banking stability. Independent variables used included credit risk (NPL), Loan to Deposit Ratio, Liquidity Risk, Net Interest Margin, Capital Adequacy Ratio, Money Market Rate, Inflation, Gross Domestic Product, Federal Reserve rate, and Exchange Rate. The results of the regime switch analysis concluded that Indonesia's banking stability experienced a structural break due to the effects of the pandemic in April 2020. Based on the average Z-score value, the Islamic banking stability index was higher than conventional banking. In other words, Islamic banking was more stable than the conventional banking system. The Islamic banking stability index (iZscore) was significantly influenced by the level of Net Operating Margin, Financing to deposit ratio, Potential Loss Profit Sharing, Islamic Money Market Rate, and Exchange Rate. However, non-performing financing did not affect Islamic banking stability since the profit-sharing system implemented by Islamic banking stability was more influenced by the ratio of potential loss and profit-sharing system.

Corporate Social Responsibility Moderates the Nexus between Financial Inclusion and Islamic Financial Stability

This research work checks the influence of the financial inclusion index (FI) and corporate social responsibility index (CSRI) on financial stability, profitability, and return on equity of the Islamic banks of Pakistan. Further, research works to check whether the corporate social responsibility index plays a moderating role in the association between the financial inclusion and financial stability of Islamic banks and windows of Islamic conventional banks of Pakistan. The corporate social responsibility index was measured through the contribution of social activity to society. Financial inclusion was measured through financial access to the entire society without any discrimination against society. In this paper, samples of the Islamic banks including the Islamic window of the conventional banks for 2005 to 2020 are investigated. Further, the data is selected of the variables from the financial statement and balance sheet of the banks. The fixed effects and generalized moments of the method are employed to check the affiliation between the FI and CSR on the stability and profitability of Islamic banks. The generalized moment of method (GMM) has been employed on the panel data set to control the endogeneity from the model. The empirical results of this research study have the following conclusion: Firstly, FI has a constructive and significant impact on the financial stability and profitability of the banks. Secondly, corporate social responsibility has a positive and significant impact on stability and profitability. Finally, the interaction term corporate social responsibility has a positive and significantly moderating effect on the relationship with the financial inclusion on the stability (FS) and profitability on the Islamic banks.

Islamic banking stability amidst the COVID-19 pandemic: the role of digital financial inclusion

PurposeThis paper aims to explore the role of digital financial inclusion (DFI) in stabilizing the Islamic banking sector amidst the current COVID-19 pandemic.Design/methodology/approachThis study has used the Panel-Corrected Standard Errors (PCSE), Two-Stage Panel Least Squares-Instrumental Variables (2SLS-IV) and Two-Step System Generalized Method of Moments (2SGMM) dynamic panel estimation method to investigate the DFI-Islamic banking stability nexus using an unbalanced panel data of 65 Islamic banks from six countries over the period 2011–2020.FindingsThe result suggests that greater implementation of DFI promotes Islamic banking stability, which reduces the default risk of the banks in the studied region. Consequently, incorporating DFI into the Islamic banking sector encourages inclusive economic growth that can keep the financial sector sustainable even in a crisis period like the current COVID-19 pandemic.Originality/valueUnlike previous studies, the authors have focused mainly on DFI and the Islamic banking sector. This is one of the first to explore how DFI contribute to the stability and productivity of the Islamic banking sector during the pandemic. Also, this study provides fresh evidence on how the supply and demand side of DFI impact Islamic banking stability.

Stage-I Shariah compliant Macaulay’s duration model testing

PurposeThe purpose of this study is to develop, test and examine econometric methodology for Sharīʿah-compliant duration models of Islamic banks.Design/methodology/approachThe research evaluates all existing duration models from Sharīʿah’s perspective and develops a four-stage framework for testing Sharīʿah-compliant duration models. The econometric methodology consists of multiple regression, Johansen co-integration, error correction model, vector error correction model (VECM) and threshold vector error models (TVECM).FindingsRegressions analysis suggests that returns on earning assets and interbank offered rates are significant factors for calculating the duration of earning assets, whereas returns paid on return bearing liabilities and average interbank rates of deposits are significant factors for duration of return bearing liabilities. VECM suggests that short run duration converges into long run duration and TVECM suggests that management of assets and liabilities also plays a significant role that can bring about a change of about 15% in respective durations.Practical implicationsSharīʿah-compliant duration models will improve risk and Sharīʿah efficiency, which will ultimately improve market capitalization and returns stability of Islamic banks in the long run.Originality/valueSharīʿah-compliant duration models testing provides insight into how various factors, namely, rates of return, benchmark rates and managerial skills of Islamic bank risk managers impact durations of assets and liabilities. It also explains the future course of action for Sharīʿah-compliant duration model testing.

Corporate Governance and Macroeconomics on The Financial Stability of Islamic Banks

Purpose: This study discusses the influence of Corporate Governance and macroeconomics on financial stability in the Islamic banking sector.
 Design/methodology/approach: This study employed a quantitative and Data analysis uses panel data regression.
 Findings: while the independent variable in this study is Corporate Governance and Macroeconomics, with the results showing that Corporate Governance and macroeconomics have no partial effect..
 Research limitations/implications: There are only two variables considered in this paper: corporate governance and macroeconomic.
 Practical implications: partially corporate governance has no effect and macroeconomics has a negative effect.
 Originality/value: TThis study calculates and finds out the truth of corporate governance and macroeconomic variables on financial stability.
 Paper type: Research Paper
 Keyword: Corporate Governance, Macroeconomics, Financial Stability, Inflation

Stability Analysis Of Islamic Banking: Indonesia, Malaysia And Pakistan

Following the 2008 financial crisis, the global economy will continue to experience shock in the years to come. Therefore, it is vital to conduct research that can anticipate the impact of fluctuations in financial stability. This research examines the stability of the Islamic banking system in Indonesia, Malaysia, and Pakistan, using Z-Score as a proxy variable for stability measurement and Markov Switching VAR for the method. The objectives are to identify which Islamic banking has better resilience in facing crisis and identify the economic variables that have a significant effect on the stability of Islamic banking. The results showed that the stability of Indonesian Islamic banking was more stable compared to Malaysia and Pakistan. The crisis periods determined from the method show that in 2019 all countries studied entered the beginning of the crisis period, which means the world conditions tend to re-enter the crisis, repeating the 2008 financial crisis.

Indonesian Islamic Banks and Financial Stability: An Empirical Analysis

Islamic banking in Indonesia is very vulnerable to volatility in their business processes due to its small market share. Compared to conventional banks, seen from their financial performance, Islamic banks have a worse performance because of lower profit (ROA). This study examines the stability of Islamic banking in Indonesia. Stability is measured using the Z Score. The data in this study are aggregate data for Islamic commercial banks. The data used are monthly data from January 2015 to December 2019. This study uses the ARDL (Autoregressive Distributed Lag) method. The results of this study are that all independent variables OER, NPF, inflation, IPI, exchange rates have an effect on the stability of Islamic banking, except FDR. Lower efficiency and problematic financing increases the stability of Islamic banking. Meanwhile, macroeconomic factors, inflation and exchange rates, have a negative effect on the stability of Islamic banking. The economic downturn due to inflation and rupiah depreciation will increase the instability of Islamic banks.

PENGARUH HARGA PROPERTI RESIDENSIAL DAN KEBIJAKAN FINANCING TO VALUE TERHADAP STABILITAS PERBANKAN SYARIAH DI INDONESIA

This study aims to analyze the effect of residential property prices and Financing to Value policies on the stability of Islamic Commercial Banks in Indonesia. This study uses secondary data, namely time series data from all Islamic Commercial Banks in Indonesia during the period March 2010 to December 2020. The model used in this study is the Error Correction Model (ECM). The results of the study found that the Residential Property Price Index of small and medium types in the long term has an influence on the stability of Islamic Commercial Banks. However, each of them supports a different hypothesis, namely the collateral value hypothesis and the deviation hypothesis. Meanwhile, it was found that in the long and short term the Financing to Value policy had an influence on the stability of Islamic Commercial Banks in Indonesia.
 Keywords: Islamic Banking Stability, Property Price, Financing to Value

Islamic Bank and Economic Growth in the World

This research has purpose to analyze (i) the influence of oil prices, profitability and banks deposit on Islamic banks growth. (ii) the influence of Islamic banks growth on economic growth. The data for this study were collected from secondary data of the 105 Islamic banks from 24 countries. This research was conducted with the period of 10 years from 2007 to 2016, therefore this method using panel data regression. The result of panel data regression with fixed effect model consisted of the variable of oil prices, profitability, bank deposit have a significant positive effect on Islamic banks growth. The other results of panel data regression with fixed effect model consisted of the variable of islamic banks growth have a significant positive effect on economic growth. The results of this study consistent with the results of previous research. This means that the high growth of Islamic banking can increase a country’s economic growth. This study gives results that can be used as reinforcement from previous studies. This research is the first research that study on the effect of the Islamic banking growth while affecting economic growth in thr World. Therefore, government intervention is needed to maintain the stability of Islamic banking and good international relations are needed to keep oil price stable.

THE REGIME SWITCHING OF CYCLE INSTABILITY OF ISLAMIC BANKING AND THE ECONOMY: EVIDENCE FROM INDONESIA, MALAYSIA, AND PAKISTAN

This study aims to examine the cyclical instability of Islamic banking in Indonesia, Malaysia, and Pakistan. A stable Islamic banking system can give the public confidence to conduct transactions and thus grow the economy. The proxy variable for stability used is the z-score, with 156 periods of research data from January 2007 to December 2019. The Markov Switching Vector Autoregression (MS-VAR) method was employed. The results show that Islamic banking stability in Indonesia based on the z-score is more stable than others. Nevertheless, in terms of the regression of all the variables, regime shifting, and the duration of the crisis, overall Malaysian Islamic banking displays the best performance. The instability of the Indonesian model is mostly affected by inflation, whereas Malaysia and Pakistan are affected by the financing to deposit ratio and the fluctuation in global oil, respectively.

Dynamics of the Financial Stability of Islamic Banking in Malaysia: Current Perspective Analysis

This article discusses the financial stability of Islamic banking in Malaysia by focusing on the analysis of current perspectives. In addition, it also discusses the references used to describe Islamic-based financial stability. To achieve this objective, this study would analyse the resources to ascertain the arguments on how such financial stability is viewed from an Islamic perspective. This study was conducted using a qualitative method through library research by searching for references from sources such as al-Qurʼan and its interpretation, al-Hadith of the Prophet Muhammad peace be upon him and also arguments by Islamic scholars. The results of this study showed that certain texts in al-Qurʼan and al-Hadith, as well as the views of scholars, acknowledge that financial stability has a strong foundation based on authentic sources. In the context of Islamic banking in Malaysia, various aspects need to be taken into account to ensure that these banking institutions continue to remain relevant in the domestic and international financial arena. In this regard, to ensure the stability and strength of Islamic banking institutions in Malaysia, these institutions need to fully adapt the banking model recommended by the shariʻah, which would not only strengthen this industry but also make it capable of facing challenges and being resistant to financial crises and economic imbalances.

Dynamics of the Financial Stability of Islamic Banking in Malaysia: Current Perspective Analysis

This article discusses the financial stability of Islamic banking in Malaysia by focusing on the analysis of current perspectives. In addition, it also discusses the references used to describe Islamic-based financial stability. To achieve this objective, this study would analyse the resources to ascertain the arguments on how such financial stability is viewed from an Islamic perspective. This study was conducted using a qualitative method through library research by searching for references from sources such as al-Qurʼan and its interpretation, al-Hadith of the Prophet Muhammad peace be upon him and also arguments by Islamic scholars. The results of this study showed that certain texts in al-Qurʼan and al-Hadith, as well as the views of scholars, acknowledge that financial stability has a strong foundation based on authentic sources. In the context of Islamic banking in Malaysia, various aspects need to be taken into account to ensure that these banking institutions continue to remain relevant in the domestic and international financial arena. In this regard, to ensure the stability and strength of Islamic banking institutions in Malaysia, these institutions need to fully adapt the banking model recommended by the shariʻah, which would not only strengthen this industry but also make it capable of facing challenges and being resistant to financial crises and economic imbalances.

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.