Internal factors and non-performing financing in Indonesian Islamic rural banks

Muhammad, Rifqi; Suluki, Ahsin; Nugraheni, Peni

doi:10.1080/23311975.2020.1823583

Cited by 29 publications

(37 citation statements)

References 18 publications

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“…When financing is managed properly by assessing each customer’s risk level, a large or small amount of financing will not influence NPF. This result is in line with Havidz and Setiawan (2015), Dwihandayani (2016) and Muhammad et al (2020). Furthermore, as noted earlier, the NPF for SMEs’ financing is higher than for non-SMEs although total financing provided to non-SMEs is higher than that to SMEs.…”

Section: Discussion Of Long Run Resultssupporting

confidence: 86%

“…A higher CAR means that SRBs have to maintain a larger amount of reserve funds, thus limiting their ability to provide financing in the long term and minimizing their credit risk as well. This result supports the finding of Muhammad et al (2020) that high CAR can be used to absorb losses and thus minimize financing risk.…”

Section: Ijifsupporting

confidence: 89%

“…good or bad management. Muhammad et al (2020) state that there are two possibilities when FDR has no effect on NPF. First, SRBs get profit not only from financing, but also investment in SBSN or the financial market.…”

Section: Determinants Of Credit Riskmentioning

confidence: 99%

“…Using a sample of SRBs in Indonesia for the years 2012–2017, Nugrohowati and Bimo (2019) found that ROA and CAR negatively influence NPF, whereas inflation has no effect on NPF in SRBs. Meanwhile, Muhammad et al (2020) found that CAR, ROA and bank size negatively influence NPF in SRBs.…”

Section: Literature Reviewmentioning

confidence: 99%

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Determinants of credit risk of Indonesian Sharīʿah rural banks

Priyadi

Utami

Muhammad

et al. 2021

IJIF

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Purpose This study aims to examine the influence of internal and external factors on the credit risk (represented by nonperforming financing [NPF]) of Indonesian Sharīʿah rural banks (SRBs) – a type of Islamic bank that provides Islamic financial services especially to small and medium businesses in Indonesia. Internal variables comprise capital adequacy ratio (CAR), financing to deposit ratio (FDR), return on assets (ROA), operating expense ratio (OER), financing to value (FTV) and profit and loss sharing (PLS) financing ratio. External variables comprise inflation, economic growth and interest rate. Design/methodology/approach The study uses the annual reports of SRBs in Indonesia as secondary data for the years 2010–2019. Auto regressive distributed lag (ARDL) is used as the analysis method to examine the short-run and long-run relationships between the variables. Findings The findings indicate that four variables experienced a lag in the short run, namely, NPF, inflation, CAR and PLS, with different results recorded for each of the variables. Furthermore, the long-run results show that CAR and ROA influence the NPF of SRBs positively, whereas inflation and PLS have a negative influence on NPF. The rest of the variables – notably economic growth, interest rate, FDR, FTV and OER – do not have an influence on NPF in SRBs. Research limitations/implications The level of NPF in SRBs exceeds the provision of the Central Bank of Indonesia. The findings are expected to have implications for SRBs and the regulator to consider and to manage the factors related to NPF properly due to the important role of SRBs in small and medium businesses’ development. Originality/value This study measures the determinants of NPF using internal and external variables, including the addition of a dummy variable, notably FTV. This study also uses ARDL to analyze the financial policies involving data at the present time and lagged time.

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Section: Discussion Of Long Run Resultssupporting

confidence: 86%

Section: Ijifsupporting

confidence: 89%

Section: Determinants Of Credit Riskmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Determinants of credit risk of Indonesian Sharīʿah rural banks

Priyadi

Utami

Muhammad

et al. 2021

IJIF

Self Cite

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“…In addition, some macroeconomic variables such as GDP, inflation, and exchange rate also contribute to Islamic banks' NPF (Havidz & Setiawan, 2015;Lin et al, 2016;Widarjono, 2020). Some previous studies also addressed the NPF of Islamic rural banks, which is above the maximum of thresholds and higher than those conventional rural banks (Hosen & Muhari, 2019;Widarjono et al, 2020;Muhammad et al, 2020). The bank-specific variables such as that bank's size, CAR, and income diversification seem to have a non-negligible effect on Islamic rural banks' NPF.…”

Section: Literature Reviewmentioning

confidence: 99%

Financing diversification and Indonesian Islamic bank's non-performing financing

Widarjono

Rudatin

2021

JEKI

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Purpose -This study empirically analyzes the effect of the financing diversification with some control variables including both bank-specific variables such as bank's size, CAR, efficiency and the macroeconomic variables such as the inflation and exchange rate, on the Islamic bank's non-performing financing (NPF).Methodology -The aggregate Islamic bank data encompassing Islamic commercial banks and Islamic business units are used. The Autoregressive Distributed Lag Model (ARDL) is employed using the monthly data covering January 2011 to December 2019.Findings -The cointegration test indicates that the long-run relationship among variables being studied exists. Our results document that higher concentrated financing generates high NPF. Higher asset significantly contributes to reducing NPF. In addition, higher operating efficiency can reduce NPF. The instability of the exchange rate also generates the high NPF.Practical implications -Our results suggest that Islamic banks must lessen the high concentrated financing by optimizing both PLS and non-PLS contracts to reduce Islamic banks' financing risk.Research limitations -This study employs aggregate data but applying them may conceal for individual Islamic bank.Originality -Our study includes financing diversification to examine Islamic bank's financing risk. The existing empirical studies, to the best of our knowledge, have not addressed the impact of financing diversification on financing risk.

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