Financial Performance Islamic Banking Unit In Indonesia: A Comparative Study Private Banks And Regional Development Banks

Agustin, Hamdi (2016) Financial Performance Islamic Banking Unit In Indonesia: A Comparative Study Private Banks And Regional Development Banks. IJER. pp. 1400-1409. ISSN 0972-9380

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Abstract

One of the unique banking in Indonesia is a Regional Development Banks (RDB), which is a districts government-owned bank. Indonesia banks have Islamic banking units, where the status usually in division and business unit of the Bank’s parent (conventional). But there are no funds will be mixed with the conventional, because they have a different system of financial records between sharia units and conventional units. The purpose of this study is to comparing the performance of RDB and private banks which has Islamic banking units. The population and sample consists of 24 Islamic business units Regional Development Banks (RDB) and private owned banks. From the 24 banks, only 18 banks were selected to be the sample. The banks are 7 private banks and 11 regional development banks. The period of this study is from 2010 to 2014. Data are taken from the bank’s annual reports. This study using panel data and using pooled Ordinary Least Squares (OLS), random effect and fixed effect analysis. The results showed that RDB of Islamic banking units is better than Islamic business unit of private banks; this suggests that due to several factors. First, lending only to employees of the local government where government employees are very difficult to stop. Because of they are difficult to be dismissed; the probability that they are unable to repay loans is very low despite the unstable economic situation. Second, since RDB provide services only to an area only, so it has special knowledge about the area. This simplifies the RDB to assess loan applications from customers and identify viable loans. Third, the performance of RDB supervised by local governments This study also shows that DIBU, DEPOSIT, LDR, CAR and NPL plays a significant factor in explaining the performance of Islamic banking unit in Indonesia banks.

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