Determinants of non-performing financing in Indonesian Islamic banks: A regional and sectoral analysis

  • Received July 28, 2022;
    Accepted October 27, 2022;
    Published November 7, 2022
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/bbs.17(4).2022.07
  • Article Info
    Volume 17 2022, Issue #4, pp. 72-86
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This work is licensed under a Creative Commons Attribution 4.0 International License

This study examines the determinants of Islamic banks’ non-performing financing from the perspective of regional and sectoral aspects during the periods before and during the pandemic. The study adopts a dynamic panel data analysis, namely the Generalized Method of Moments, and assesses panel data from the Indonesian banking industry in 32 provinces from October 2018 to July 2021 on a monthly basis. The study uses non-performing financing as the dependent variable and regional inflation, total financing, financing to deposit ratio, and Islamic bank size as the dependent variables. The findings indicate that the COVID-19 pandemic generally influenced the performance of non-performing financing in Islamic banks. This was evident in the significant relationship between regional inflation, total financing, financing to deposit ratio, and the non-performing financing value. Moreover, in the sectoral analysis, a different level of impact was observed in each sector. The most severe impact was seen in the construction sector, while other sectors were less affected during the pandemic. The regional analysis shows that all provinces on Java Island, as the epicenter of the pandemic in Indonesia, did not perform better than the provinces outside Java. Concerning policy implications, the Indonesian Financial Services Authority must be more aware of the determinants of Islamic banks’ non-performing financing by considering sectoral and regional aspects. Furthermore, sectoral and regional-based policies should be developed to achieve and maintain the performance of Islamic banks’ non-performing financing.

Acknowledgments
We are grateful to the Pusat Pengembangan Ekonomi (PPE), Faculty of Business and Economics, Universitas Islam Indonesia No. 259/KajurIE/XII/2021 for support and providing a research grant for the study

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    • Table A1. Data description
    • Table B1. GMM results in general
    • Table C1. GMM results on sectoral (Agriculture, hunting, and forestry, fishery, and mining and excavation) and regional bases
    • Table C2. GMM results on sectoral (processing industry, electricity, gas, and water, and construction) and regional bases
    • Table C3. GMM results on sectoral (wholesale and retail trade, accommodation and food providers, and transportation, warehousing, and communication) and regional bases
    • Table C4. GMM results on sectoral (financial intermediary, real estate, leasing and corporate service, and education service) and regional bases
    • Table C5. GMM results on sectoral (health service and social activities, social, cultural, entertainment, and other services, and personal service serving households) and regional bases
    • Table D1. Arellano-Bond test result
    • Table E1. Blundell test result
    • Conceptualization
      Faaza Fakhrunnas, Riska Dwi Astuti
    • Data curation
      Faaza Fakhrunnas
    • Formal Analysis
      Faaza Fakhrunnas
    • Funding acquisition
      Faaza Fakhrunnas, Riska Dwi Astuti, Mohammad Bekti Hendrie Anto
    • Investigation
      Faaza Fakhrunnas, Riska Dwi Astuti
    • Methodology
      Faaza Fakhrunnas
    • Resources
      Faaza Fakhrunnas, Mohammad Bekti Hendrie Anto
    • Software
      Faaza Fakhrunnas
    • Supervision
      Faaza Fakhrunnas, Riska Dwi Astuti, Mohammad Bekti Hendrie Anto
    • Validation
      Faaza Fakhrunnas, Riska Dwi Astuti, Mohammad Bekti Hendrie Anto
    • Writing – original draft
      Faaza Fakhrunnas, Riska Dwi Astuti
    • Visualization
      Riska Dwi Astuti
    • Writing – review & editing
      Riska Dwi Astuti
    • Project administration
      Mohammad Bekti Hendrie Anto