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

This study investigates the impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks in the context of Yemen. The study used two common measures of profitability, namely, Return on Assets (ROA) and Return on Equity (ROE) as dependent variables. Seven key independent (internal and external) variables are also used. There are five fully-fledged Islamic banks (IBs) working in Yemen. The study selected only three out of five IBs due to the availability of data for the period ranging from 2010 to 2014. The descriptive and multiple regression analyses were done. The results of the study indicate that operating efficiency and financial risk have negative and significant relationships with ROA and ROE. The findings also show that capital adequacy has a negative and insignificant relationship with ROA and ROE. Furthermore, the study reveals that assets size (LogA), assets management, liquidity and deposits have a significant and positive impact on banks’ profitability. GDP, Inflation rate (IR) and Political instability have positive and significant impact on Yemeni banks’ profitability. Based on the best knowledge of the authors, this study is considered one of the first and pioneering studies that determine the factors affecting the profitability of Islamic banks of Yemen. Therefore, the study gives good insights for the policy makers, regulators and interested parties for enhancing the profitability of Islamic banks in Yemen.

This study aims to investigate the impact of Good Corporate Governance (GCG) on the financial performance of sharia banking. GCG is measured by the Board of Commissioners Performance, the Board of Commissioners Composition, the Number of Audit Committees, the Board of Directors, and the Sharia Supervisory Board Performance, whereas financial performance is proxied by Return on Assets, financing risk (Non-Performing Financing), and capital (Capital Adequacy Ratio). Sharia commercial banks registered by Bank Indonesia made the sample of this study. Annual reports and GCG reports of sharia commercial banks from 2014 to 2017 are used as a data source. The study uses a panel data regression approach to analyze the data; some interesting results have been obtained. The Sharia board positively affected financial performance of Islamic banks in terms of return on assets and capital adequacy ratio, and negatively as to non-performing financing. Similarly, the board of directors had a significant impact on the financial performance of Islamic banks in the same direction as the sharia supervisory board in terms of the three components. Meanwhile, the board of commissioners had a significant and positive impact only on the return on assets of Islamic banks in Indonesia.

Indonesian Islamic Banking Act requires conventional banks to spin-off their Islamic business units if they had fulfilled the spin-off criteria. Some of the Islamic business units had done the spin-off process although they are not fulfilling the spin-off criteria. The data showed that there is an efficiency decline after the spun-off. This study is going to examine the spin-off’s impact on the efficiency in spin-off banks. The method used in this paper is a difference-in-differences analysis. The sample used is four spin’s banks as treatment objects and two Islamic full-pledge banks as control objects. This research shows that there is an impact of spin-off policy on the efficiency in spin-off banks. There is an efficiency decrease in spin-off banks after the activities. It implies that the spin-off policy is not the only strategy that can be implemented. The policy-makers can choose other strategies to enhance the development of Islamic banking industry.