Determinants of Bank Stability in Indonesia

This study aims to analyse the determinant of banks’ stability in Indonesia, which is very important to ensure that the country’s banking system could be more effective in supporting transmission of monetary policy and more resilient in facing financial crisis. To achieve the objective, this study collected a comprehensive dataset from 94 banks in Indonesia, covering both conventional and Islamic banks, during September 2015 - June 2019 period. The data is subsequently analysed by employing dynamic panel data model. The results show that the main factors that positively influenced banks’ stability in Indonesia are exchange rate, financial inclusion, asset returns, and credit/financing growth. However, interest rates are found to be negatively influenced the stability. The findings are expected to provide insights for policy makers and market players in ensuring that the banks’ stability could be well maintained in Indonesia. The results are also hoped to enrich literature in economics and banking, particularly in emerging markets like Indonesia.JEL Classification: G21.How to Cite:Kasri, R. A., & Azzahra, C. (2020). Determinants of Bank Stability in Indonesia. Signifikan: Jurnal Ilmu Ekonomi, 9(2), 153-166. doi: http://doi.org/10.15408/sjie.v9i2.15598

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