Vol. 5, No. 11, November 2024

E-ISSN: 2723 - 6692

P-ISSN: 2723 - 6595

http://jiss.publikasiindonesia.id/

Journal of Indonesian Social Sciences, Vol. 5, No. 11, November 2024 2845

Analysis of the Determinants of Financing Risk in Islamic Banks

in Indonesia

Masfiatun, Nur Khayin Muhdlor, Mohammaad Zuhdi

Universitas Nahdlatul Ulama Indonesia

Email: [email protected].id, hayyin@unusia.ac.id, zuhdi@unusia.ac.id

Correspondence: masfiatun.04@unusia.ac.id

KEYWORDS

ABSTRACT

Determinan; Financing Risk;

Bank Syariah

This research aims to analyze the factors affecting Islamic banks'

financing risks. The data used in this study are from Sharia

Commercial Banks nationally, with observations from 2018 to 2022

for a monthly time period, while the model in this study is multiple

linear regression. The results of the study show that internal factors,

such as ROA and CAR, have a significant negative effect on financing

risk, while BOPO has a significant positive effect on financing risk.

The conclusion of this study emphasizes the importance of bank

performance in minimizing risks faced by banks, as well as the need

to improve operational efficiency and human resource management.

Attribution-ShareAlike 4.0 International (CC BY-SA 4.0)

Introduction

In Indonesia, the first Islamic bank was established in 1991, which is a bank whose operation

is based on Islamic sharia principles. In the last banking law (Law No. 21 of 2008), it is implied that

Sharia principles include rules of agreement based on Islamic law between banks and other parties

to deposit funds and/or finance business activities or other activities that are declared in accordance

with sharia (Mardani, 2015). Islamic bank activities that are in accordance with Sharia principles

include; Financing based on the principle of profit sharing (mudharabah), financing based on the

principle of capital participation (musharakah), the principle of buying and selling goods with profits

(murabahah), financing of capital goods based on the principle of the pure lease without option

(ijarah), or with the option of transferring ownership of goods leased from the bank by other parties

(ijarah wa iqtina) (Zuhirsyan, 2018).

The development of information technology is a demand for Islamic bank banking to develop

various types of products. In order for products and systems to always run in accordance with Sharia

principles, the National Sharia Council of the Indonesian Ulema Council (DSN-MUI), as a regulator,

issues fatwas that can accommodate the needs of Islamic banking so that it is always within the

corridor of Islamic law. One of the important principles that must be complied with by Islamic banks

in fund management must be free from the element of riba it. Interest rates, which are applied as a

source of income for conventional banking institutions, cannot be applied by Islamic banks because

they are considered to be closely related to usury. As a substitute for interest rates, a profit-sharing

system is used as an alternative way of accepting Islamic banking businesses. The prohibition of using

the interest system is a very important distinction between Islamic banks and conventional banks.

e-ISSN: 2723-6692 p-ISSN: 2723-6595

Journal of Indonesian Social Sciences, Vol. 5, No. 11, November 2024 2846

Islamic banking is a system designed for collective economic activity, whereby the profits are

shared between the investors (shahibul mal), the financial institutions acting as the fund managers

(mudharib), and the borrowers or business managers who require funds (Abbas et al., 2020;

Chamberlain et al., 2020). The evolution of Islamic banking is inextricably linked to the inherent risks

that have the potential to disrupt the continuity of the banking business. Banks must implement risk

management as a methodology and set of procedures designed to identify, measure, monitor, and

mitigate risks associated with all aspects of their business activities (Rahmawati & Mulyati, 2021).

The financing process provided to customers by banks is susceptible to potential issues or instances

of poor financing. Financing risk is defined as the potential for loss resulting from the inability to

recover funds disbursed. Non-performing financing is defined as financing that is of poor quality and

falls into one of three categories: current, doubtful, or stuck (Djamil, 2012). In Islamic banks, this

condition is reflected in the significant ratio of non-performing financing, commonly referred to as

Non-Performing Financing (NPF). NPF serves as an indicator of non-performing financing that

warrants consideration due to its volatile and uncertain nature. Consequently, it is essential to pay

special attention to NPF as it represents a crucial performance assessment instrument for Sharia

banks. This is particularly evident in the assessment of non-performing financing. .

The source of problematic financing can be attributed to external or internal influences. From

an external perspective, macroeconomic variables such as GDP, inflation, and margin rate have been

identified as key factors influencing bank performance (Ahmed et al., 2021; Ongore, 2011). As a

developing country, Indonesia's economic conditions exert a considerable influence on the

operations of its banking sector. Macroeconomics is inextricably linked to the phenomenon of

inflation, which can be defined as a sustained increase in the general price level. In other words,

inflation represents a continuous decline in the purchasing power of a currency. If inflation is

relatively mild, it can have a positive impact on economic activity, such as fostering a greater

propensity to invest. Conversely, in conditions of severe inflation, the state of the economy becomes

chaotic and unstable.

Meanwhile, internal influence comes from operational activities within the banking itself which

are contained in financial performance. The financial performance of a bank can be seen through its

financial ratios as an indicator of health as well as an analytical tool to predict the profits that will be

generated. The results of the research by Hosen and Muhari (2019) show that the intrinsic factors

that affect NPF are Return on Equity (ROE), which has a negative significant influence on NPF while

Financing to Deposit Ratio (FDR) has a positive significant influence on NPF. Different results were

found by Havidz and Chandra (2015), Capital Adequacy Ratio (CAR), ROA, and FDR had no significant

effect on NPF. Based on the background that has been explained, the purpose of this paper is to

analyze both external and internal factors that affect financing risks in Islamic banks in Indonesia.

Research Methods

The analysis method in this paper is Quantitative, namely by analyzing a problem or

phenomenon based on data and combining it with regression analysis. The data used in this study is

time series data and is secondary data obtained from the publications of BPS (Central Statistics

Agency), BI (Bank Indonesia), and OJK (Financial Services Authority). The unit of analysis in this study

is Sharia Commercial Banks nationally with an observation period from 2018 to 2022 with a monthly

time period. The models used in this study are as follows: (Ikatan Bankir Indonesia, 2018)

e-ISSN: 2723-6692 p-ISSN: 2723-6595

Journal of Indonesian Social Sciences, Vol. 5, No. 11, November 2024 2847





 



 











  







 



















Information:

ROA = Return on Equity in the period

NPF = Non-Performing Financing periode t

BOPO = Operating Expense Operating Income in the period t

CAR = Capital Adequancy ratio pada periode t

BI rate = BI interest rate in the period t





= inflation in the period t

Results and Discussion

NPF is an indicator of non-performing financing that warrants consideration due to its volatile

and uncertain nature. Moreover, NPF serves as a performance assessment instrument for Islamic

banks, offering an interpretation of productive asset valuation, particularly in the context of non-

performing financing assessment. As illustrated in the following chart, based on data from the OJK,

the NPF of Islamic banks from 2008 to 2022 tends to be stable:

Figure 1. Sharia Bank NPF 2018-2022

Source: Sharia Banking Statistics; Data processed

Furthermore, in analyzing the determinants of financing risk, the author analyzes with a simple

regression analysis. The results of estimation with time series data are obtained:

Table 1.

Results of Regression Determinants of Sharia Bank Financing Risk

Variable Dependencies

NPF

ROA

-0.4530384**

2018m1

2018m3

2018m5

2018m7

2018m9

2018m11

2019m1

2019m3

2019m5

2019m7

2019m9

2019m11

2020m1

2020m3

2020m5

2020m7

2020m9

2020m11

2021m1

2021m3

2021m5

2021m7

2021m9

2021m11

2022m1

2022m3

2022m5

2022m7

2022m9

2022m11

NPF (%)

e-ISSN: 2723-6692 p-ISSN: 2723-6595

Journal of Indonesian Social Sciences, Vol. 5, No. 11, November 2024 2848

(0.2121606)

BOPO

0.0471848**

(0.219384)

CAR

-0.121292***

(0.03903)

BI-rate

-0.0791603

(0.0718565)

Inflasi

2.945954

(2.585504)

R-sq

0.66

Number of Observation

Description: *** significant 1 percent, ** significant 5 percent, * significant 10 percent, (), standard

error.

Source: Author data processing results

From the results of the data processing above, it shows that the variables that have a significant

effect on the risk of Islamic bank financing are only internal factors, namely; ROA, BOPO and CAR. This

is in line with previous research by Ghosh (2015) and Sabir (2012), which stated that there is a

negative influence between ROA as a performance factor on non-performing loans (NPF). Because the

better the bank's performance, the less financing risk occurs. Furthermore, the variables that affect

bank financing risk are the level of bank efficiency or BOPO and the capacity or size of the bank which

is explained by the CAR variable. BOPO has a positive effect on financing risk, meaning that if BOPO

increases, bank financing risk also increases. The results of this study are in line with the research of

Louzis, Vouldis et al. (2018) who stated that there is a positive influence between BOPO and NPL. A

high BOPO value indicates poor performance, so if the BOPO is high, the NPF will increase. Meanwhile,

the CAR variable has a negative effect on the financing risk of Islamic banks. This finding is also

consistent with the findings of Diyanti (2012), which indicate that the higher the capital owned by

banks, the more readily they can finance risky assets. Similarly, if credit is not accompanied by

sufficient capital, it may result in non-performing loans. Therefore, it can be concluded that a higher

CAR is associated with a reduction in credit risk faced by banks.

Conclusion

Factors that affect financing risk in Islamic banks are internal factors only, in the sense of the

bank's own performance. ROA and CAR have a significant negative effect on financing risk in Islamic

banks, while BOPO has a significant positive effect on financing risk in Islamic banks. From the results

of these findings, it can be concluded that bank performance is very important to minimize the risks

faced by banks. Therefore, in carrying out its operations, banks must improve human resources and

manage or operate their activities efficiently.

References

e-ISSN: 2723-6692 p-ISSN: 2723-6595

Journal of Indonesian Social Sciences, Vol. 5, No. 11, November 2024 2849

Abbas, A., Rayyani, W. O., & Purnamasari, R. (2020). Sharia Banks and Their Business Earnings: an

Empirical Exploratory of the Case of Indonesia. Airlangga International Journal of Islamic

Economics and Finance, 3(1), 31–41.

Ahmed, S., Majeed, M., Thalassinos, E., & Thalassinos, Y. (2021). The Impact of Bank Specific and

Macro-Economic Factors on Non-Performing Loans in the Banking Sector: Evidence from an

Emerging Economy. Journal of Risk and Financial Management, 14(5), 217.

https://doi.org/10.3390/jrfm14050217

Chamberlain, T., Hidayat, S., & Khokhar, A. R. (2020). Credit risk in Islamic banking: evidence from the

GCC. Journal of Islamic Accounting and Business Research, 11(5), 1055–1081.

https://doi.org/10.1108/JIABR-09-2017-0133

Diyanti, A. (2012). Analisis Pengaruh Faktor Internal dan Eksternal terhadap Terjadinya Non-

Performing Loan (Studi Kasis pada Bank Umum Konvensional yang Menyediakan Layanan

Kredit Kepemilikan Rumah Periode 2008-2011). Diponegoro Journal of Management, 1(2), 290–

299.

Djamil, F. (2012). Penyelesaian Pembiayaan Bermasalah di Bank Syariah. Sinar Grafika.

Ferhi, A. (2018). Credit risk and banking stability: a comparative study between Islamic and

conventional banks. International Journal of Law and Management, 60(4), 1009–1019.

https://doi.org/10.1108/IJLMA-05-2017-0112

Ghosh, A. (2015). Banking-industry specific and regional economic determinants of non-performing

loans: Evidence from US states. Journal of Financial Stability, 20, 93–104.

https://doi.org/10.1016/j.jfs.2015.08.004

Havidz, S. A. H., & Chandra, S. (2015). Bank Efficiency and non-Performing Financing (NPF) in the

Indonesian Islamic Banks. Asian Journal of Economic Modelling, 3(3), 67–79.

Hosen, M. N., & Muhari, S. (2019). Non-performing financing of Islamic rural bank industry in

Indonesia. Banks and Bank Systems, 14(1), 20–28. https://doi.org/10.21511/bbs.14(1).2019.03

Ikatan Bankir Indonesia. (2018). Memahami Bisnis Bank Syariah. PT. Gramedia Pustaka Utama.

Kumar, V., & Kishore, P. (2019). Macroeconomic and Bank Specific Determinants of NonPerforming

Loans in UAE Conventional Bank. Journal of Banking and Finance Management, 2(1), 1–12.

Mardani, M. (2015). Aspek Hukum Lembaga Keuangan Syariah Di Indonesia. Prenada Media.

Ongore, V. O. (2011). The relationship between ownership structure and firm performance: An

empirical analysis of listed companies in Kenya . African Journal of Business Management, 5(6),

2120–2128.

Rahmawati, I., & Mulyati, B. (2021). Analisis Manajemen Resiko Perbankan Dalam Meminimalisir Non

Performing Finance. Syi`ar Iqtishadi : Journal of Islamic Economics, Finance and Banking, 5(1), 1.

https://doi.org/10.35448/jiec.v5i1.8913

Sabir, M. (2012). Pengaruh Rasio Kesehatan Bank Terhadap Kinerja Keuangan Bank Umum Syariah

dan Bank Umum Konvensional di Indonesia. Jurnal Analisis Manajemen Dan Keuangan, Fakultas

Ekonomi Dan Bisnis Unhas, 1(1).

Zuhirsyan, N. (2018). Perspektif Mudharabah pada Perbankan Syariah dan Sistem Bunga pada

Perbankan Konvensional. Majalah Iptek Politeknik Negeri Medan: Polimedia, Produktivitas

Menuju Kualitas, 22(2).