The impact of conversion on market share in Indonesian Islamic banks

  • 564 Views
  • 301 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

The process of converting a conventional bank into a fully-fledged Islamic bank is becoming a popular alternative solution, alongside spin-off, for smaller banks. Two Indonesian banks, Bank of Aceh Sharia and Bank of NTB Sharia, completed this conversion in 2016 and 2018, respectively. This study uses a mixed-methods approach to examine the impact of this conversion on market share, using both quantitative regression with a dummy variable and qualitative analysis through focus group discussions with executive management and in-depth interviews with the Sharia supervisory boards of the two converted banks. The study found that the conversion positively impacted market share, with the default rate and level of capital also playing a role. Prior to conversion, the Indonesian sharia banking industry had less than a 5% market share, but after the conversion, it reached 6.7%. The two converted banks were able to increase their market share to 7% and 2%, respectively. These results suggest that converting into a full-fledged Islamic bank is a viable alternative solution for smaller conventional banks, rather than opting for spin-offs or mergers.

view full abstract hide full abstract
    • Table 1. Empirical result impact of conversion on market share
    • Table 2. Market share of converted banks
    • Conceptualization
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati, Dede Abdul Fatah
    • Data curation
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati, Dede Abdul Fatah
    • Formal Analysis
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati
    • Funding acquisition
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan
    • Investigation
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati
    • Methodology
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati
    • Software
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan
    • Supervision
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan
    • Validation
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati
    • Visualization
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati, Dede Abdul Fatah
    • Writing – original draft
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan
    • Writing – review & editing
      Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati, Dede Abdul Fatah
    • Project administration
      Dwi Nuraini Ihsan
    • Resources
      Dwi Nuraini Ihsan