The impact of inflation on Islamic banks’ home financing risk: Before and during the COVID-19 outbreak
-
DOIhttp://dx.doi.org/10.21511/bbs.16(2).2021.08
-
Article InfoVolume 16 2021 , Issue #2, pp. 78-90
- Cited by
- 1602 Views
-
658 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The COVID-19 outbreak has had a severe impact on nearly all industries, including Islamic banking, which plays a significant role but is exposed to higher risk. This study aims to evaluate the credit risk that Islamic banks in Indonesia have been exposed to related to home financing before and during the COVID-19 outbreak. Panel data are employed covering the period January 2016 to September 2020 on a monthly basis. The data were analyzed using a dynamic panel approach to present a distinct picture of Sharia-compliant property financing before and during the COVID-19 outbreak. In general, the findings show that the macroeconomic variable reflected by regional inflation has had a different influence in the two periods, with Islamic banks having had much more exposure to macroeconomic risk, specifically in home financing, during the epidemic. In addition, the different influences are also shown by the study results, which show that provinces on Java Island face less risk exposure than those outside Java. In terms of impulse response factors and variance decompositions’ result, before the outbreak, the response of home financing risk to inflation tended to be more stable. However, during the outbreak, the movement has tended to fluctuate more, especially outside Java Island. The same result for variance decompositions shows a similar trend, with inflation tending to have a larger impact during the outbreak.
Acknowledgments
We are grateful to the Direktorat Penelitian dan Pengabdian Masyarakat (DPPM) Universitas Islam Indonesia No. 001/Dir/DPPM/70/Pen.Unggulan/XII/2020 for support and providing a research grant for the study.
- Keywords
-
JEL Classification (Paper profile tab)E60, G20, R31
-
References40
-
Tables5
-
Figures4
-
- Figure 1C. Before the COVID-19 outbreak (Java Island)
- Figure 2C. Before the COVID-19 outbreak (outside Java Island)
- Figure 3C. During the Covid-19 outbreak (Java Island)
- Figure 4C. During the COVID-19 outbreak (outside Java Island)
-
- Table 1. Data description
- Table 1A. Panel unit root test results
- Table 1B. PVAR results
- Table 1D. Before the COVID-19 outbreak
- Table 2D. During the COVID-19 outbreak
-
- Abid, L., Ouertani, M. N., & Zouari-Ghorbel, S. (2014). Macroeconomic and bank-specific determinants of household’s non-performing loans in Tunisia: A dynamic panel data. Procedia Economics and Finance, 13, 58-68.
- Ahmed, A. (2010). Global financial crisis: an Islamic finance perspective. International Journal of Islamic and Middle Eastern Finance and Management, 3(4), 306-320.
- Alsyahrin, D. P., Atahau, A. D. R., & Robiyanto, R. (2018). The effect of liquidity risk, financing risk, and operational risk toward indonesian sharia bank’s financing with bank size as a moderating variable. Journal of Economics, Business & Accountancy Ventura, 21(2), 241-249.
- Anarfo, E. B., Abor, J. Y., Osei, K. A., & Syeke-Dako, A. (2019). Financial inclusion and financial sector development in Sub-Saharan Africa: A panel VAR approach. International Journal of Managerial Finance, 15(4), 444-463.
- Bohl, M. T., & Siklos, P. L. (2018). The anatomy of inflation: An economic history perspective (CAMA Working Paper 8/2018).
- Cheng, H., Cen, L., Wang, Y., & Li, H. (2019). Business cycle co-movements and transmission channels: evidence from China business cycle co-movements and transmission channels: Journal of the Asia Pacific Economy, 25(2), 289-306.
- Claeys, G. (2020). The European Central Bank in the COVID-19 crisis: Whatever it takes, within its mandate. Policy Contribution, 9, 1-17.
- Deloitte. (2020) Covid-19: The impacts on global residential mortgage markets.
- Elnahass, M., Trinh, V. Q., & Li, T. (2021). Global banking stability in the shadow of Covid-19 outbreak. Journal of International Financial Markets, Institutions and Money, 72, 101322.
- Erdinç, D., & Gurov, A. (2016). The effect of regulatory and risk management advancement on non-performing loans in European banking, 2000–2011. International Advances in Economic Research, 22(1), 249-262.
- Fakhrunnas, F. (2020). Total financing of Islamic rural banks and regional macroeconomic factors: A dynamic panel approach. Jurnal Ekonomi & Studi Pembangunan, 21(1), 1-15.
- Fakhrunnas, F., Dari, W., & Noor, M. M. (2018). Macroeconomic effect and risk-taking behavior in a dual banking system. Economic Journal of Emerging Markets, 10(2), 165-176.
- Firmansyah, E. A., & Gunardi, A. (2018). A new paradigm in Islamic housing: Non-bank Islamic mortgage. Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah, 10(2), 313-324.
- Firmansyah, I. (2015). Determinant of non performing loan: the case of Islamic bank in indonesia. Buletin Ekonomi Moneter dan Perbankan, 17(2), 233-250.
- Fofack, H. L. (2005). Nonperforming loans in Sub-Saharan Africa: Causal analysis and macroeconomic implications (Policy Research Working Papers). The World Bank.
- Friedland, J. (2009). The subprime and financial crises. International Journal of Disclosure and Governance, 6(1), 40-57.
- Friedman, M. (1977). Nobel lecture: Inflation and unemployment. Journal of Political Economy, 85(3), 451-472.
- Holtz-Eakin, D., Newey, W., & Rosen, H. S. (1988). Estimating vector autoregressions with panel data. Econometrica, 56(6), 1371-1395.
- Ibrahim, A., & Rahmati, A. (2017). Analisis solutif penyelesaian pembiayaan bermasalah di bank syariah: Kajian pada produk murabahah di Bank Muamalat Indonesia Banda Aceh. Iqtishadia – Jurnal Kajian Ekonomi Dan Bisnis Islam, 10(1), 71-96.
- IFSB. (2020). Islamic Financial Services Industry Stability Report 2020.
- Indonesia Financial Services Authority. (2020). Statistik Perbankan Syariah.
- Iriani, L. D., & Yuliadi, I. (2015). The effect of macroeconomic variables on non performance financing of Islamic Banks in Indonesia. Economic Journal of Emerging Markets, 7(2), 120-134.
- Kirk, C. P., & Rifkin, L. S. (2020). I’ll trade you diamonds for toilet paper: Consumer reacting, coping and adapting behaviors in the COVID-19 pandemic. Journal of Business Research, 117, 124-131.
- Klein, N. (2013). Non-Performing loans in CESEE: Determinants and impact on macroeconomic performance (IMF Working Papers No. WP/13/72).
- Kompas. (2020). Kadin: Sekitar 30 juta UMKM tutup karena pandemi Covid-19. Kompas.
- Lin, H.-Y., Farhani, N. H., & Koo, M. (2016). The impact of macroeconomic factors on credit risk in conventional banks and Islamic banks: Evidence from Indonesia. International Journal of Financial Research, 7(4), 105-116.
- Love, I., & Zicchino, L. (2006). Financial development and dynamic investment behavior: Evidence from panel VAR. The Quarterly Review of Economics and Finance, 46(2), 190-210.
- Mishkin, F. (1999). Lessons from the Asian Crisis. Journal of International Money and Finance, 18, 709-723.
- Nkusu, M. (2011). Nonperforming loans and macrofinancial vulnerabilities in advanced economies (IMF Working Papers No. WP/11/161).
- Pantano, E., Pizzi, G., Scarpi, D., & Dennis, C. (2020). Competing during a pandemic? Retailers’ ups and downs during the COVID19 outbreak. Journal of Business Research, 116, 209-213.
- Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated panels. Advances in Econometrics, 15, 93-130.
- Pedroni, P. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20(3), 597-625.
- Pesaran, M. H. (2012). On the interpretation of panel unit root tests. Economics Letters, 116(3), 545-546.
- Qu, B. Y. Z., & Perron, P. (2007). Estimating and testing structural changes in multivariate regressions. Econometrica, 75(2), 459-502.
- Statistics Indonesia. (2020). Ekonomi Indonesia triwulan II 2020. In Statistics Indonesia.
- Sukharev, O. S. (2020). Economic crisis as a consequence COVID-19 virus attack: Risk and damage assessment. Quantitative Finance and Economics, 4(2), 274-293.
- Tang, C., & Aruga, K. (2021). Effects of the 2008 Financial Crisis and COVID-19 Pandemic on the Dynamic Relationship between the Chinese and International Fossil Fuel Markets. Journal of Risk and Financial Management, 14(5), 207-218.
- Touny, M. A., & Shehab, M. A. (2015). Macroeconomic determinants of non-performing loans: An empirical study of Some Arab Countries. American Journal of Economics and Business Administration, 7(1), 11-22.
- Warue, B. N. (2013). The effects of bank specific and macroeconomic factors on nonperforming loans in commercial banks in Kenya: A comparative panel data analysis. Advances in Management and Applied Economics, 3(2), 1-7.
- Wiseman, R. M., & Catanach, A. H. (1997). A longitudinal disaggregation of operational risk under changing regulations: Evidence from the savings and loan industry. Academy of Management Journal, 40(4), 799-830.