The Factors Influencing the Changes of Deposit in Islamic Bank: Comparative Study between Malaysia And Indonesia

Abstract

This paper aims to investigate the factors influencing the changes of deposit in Islamic banks in the case of a comparative study between Malaysia and Indonesia. The focus of this paper is on the mudharabah deposits. For that purpose, a model is set up to estimate the changes of Islamic deposit. In line with this issue, we find that four variables are being considered: Non-performing financing, reserve, rate of return, and interest rate. The data were collected from 16 Islamic Banks in Malaysia and 11 Islamic Banks in Indonesia during the period 2010-2015. This study used panel data and generalised least square method. The findings show that conventional interest rates and non-performing financing for both countries have a negative relationship with the changes of Mudharabah deposits, while rate of return and bank reserve have a positive relationship and significant with the changes of Mudharabah deposits. To the best of the author's knowledge, this is the first attempt to empirically examine the differentiation of customer bank's behaviour towards Islamic deposit product in Malaysia and Indonesia.

Factors Affecting Mudaraba Deposit in Islamic Commercial Bank in Indonesia

“…Management also needs to be careful in providing financing to reduce NPL risk. These results are consistent with the findings of Yulianto & Solikhah (2016) who found a positive influence of NPL on mudaraba deposits, but contrary to Arshad & Nurfadilah (2017) who found negative NPL effects on mudaraba deposits while Hadiyati & Baskoro (2013) found no significant NPF effect towards mudaraba deposits.…”

“…They will save funds in Islamic banks if the profit-sharing is high and will move to conventional banks if interest rates are higher. The findings are also in accordance with the results of the research of Arshad & Nurfadilah (2017) and Solarin et al (2018).…”

“…In fact, the more the customer believes in the expected rate of return of mudaraba deposits, the easier the customer will save their money on the deposit. Ali et al (2015) and Arshad & Nurfadilah (2017), found a positive effect between the profit sharing of the previous period and mudaraba deposits. Likewise, with Omar & Rohmah (2018) in Malaysia, the growth of mudaraba deposits is influenced by profit-sharing indicators provided by Islamic banks.…”

“…The higher the profit-sharing obtained, the more attractive the customer will deposit funds on mudaraba deposits. The results of research Ali et al (2015), Arshad & Nurfadilah (2017), and Solarin et al (2018) found the profitsharing has a positive effect on the growth of mudaraba deposits. The number of branch offices is also a determining factor for mudaraba deposits, because the number of branch offices will ease customers to deposit their funds in Islamic banks, so Jaber & Manasrah (2019) and Pesa & Muturi (2015) recommended that Islamic banks should be more aggressive in opening branches.…”

“…Rachmawati & Syamsulhakim (2009) said that Islamic bank customers in Indonesia are rational Muslims, so interest rates are a reference in depositing funds. Solarin et al (2018) and Arshad & Nurfadilah (2017) found a negative effect between interest rates and mudaraba deposits, meaning that if interest rates rise, customers will transfer funds to conventional banks. H5: Interest rates have a negative effect on mudaraba deposits.…”