Analysis of Islamic
Banking Stability
In Indonesia
Using
Islamic Banking
Stability Index
COMPOSITION OF ASSETS AMONG
FINANCIAL INSTITUTIONS
PER DECEMBER 2014
Two causes of financial instability,
including in the banking sector, Mc
Farlane (1999), as follows:
•
Excessive Credit Growth
The Development of Islamic Banking in
Indonesia the Last Seven Years
•
Islamic Banking Assets in 2008 amounted to
49
billion
dollars with five Islamic Banks (BUS).
•
Total Assets of Islamic Banking in May 2014
reached
244 trillion
with the number 11 Islamic
Banks (BUS).
Thus, In a period of 6 years, the development of
Some Basic Principles That Lead To
Increased Stability In the Islamic Bank
( Tiby and Gras, 2015 )
•
Risk Sharing
•
Materiality
•
There Is No Exploitation
•
No Interest (Riba)
MACRO-MICRO ECONOMIC POLICY
FRAMEWORK
The Data
• The paper uses quantitative time series by using parametric approach.
• The study employs the Islamic Banking Stability Index (ISPS) as a Dependent Variable.
• The Indipendend Variable:
– M2/Reserve Ratio
– Inflation
– Real Effective Exchange Rate
– Growth of Credit
Research Methodology
•
Logic Model
•
VAR (
Vector Autoregressive
) Methodology
Some advantages are possessed by VAR model
according to Firdaus (2011) compared to the other
models are:
– The model is relatively simple
– The VAR model can be estimated using Ordinary Least Square method (OLS) were performed on each of the equations in the model separately
– The Forecasting results are better than the results of other simultaneous equation models
The Scheme Assesment of
VAR/VECM Process
THE MOVEMENT OF ISLAMIC BANKING
STABILITY INDEX IN INDONESIA
• Green : NORMAL : ISPS < -6.98
• Yellow : ALERT : -6.98 < ISPS < - 6.93 • Orange : EXTRA ALERT : -6.93 < ISPS < - 6.75
The Movement of ISPS per January
2013-June 2014
The movement of the ISPS parameters are in the
green range, which means are at
Normal Levels
.
Januari - Maret 2013 -7.114904842 -7.463852721 -7.437069621
April-Juni 2013 -7.452678457 -7.603879062 -7.638989118
Juli - September 2013 -7.655574833 -7.611203571 -7.63024006
Oktober - Desember 2013 -7.63221074 -7.593985112 -7.612335546
Januari - Maret 2014 -8.170105438 -8.126364096 -7.897280057
April-Juni 2014 -7.887363562 -7.864828644 -7.829720474
Parameter
THE PROBABILITY MAGNITUDE OF ISLAMIC BANKING INSTABILITY IN
VARIOUS THRESHOLD LEVELS IN 2004-2014 (YEARLY BASIS)
Description:
PKK = Probability of Crisis by
Kaminsky’s Threshold,
PGK = Probability of Crisis by
Garcia’s Threshold,
PPK = Probability of Crisis by
Park’s Threshold,
PLK = Probability of Crisis by
Lestano’s Threshold
Year PKK PGK PPK PLK
2004 -0.0377 1.677 0.31396 -0.3564 2005 0.03295 4.80093 0.86723 0.50411
2006 -0.0287 0.89575 -0.2505 -0.1953
2007 0.02885 1.21101 1.18474 0.64013 2008 -0.0999 1.22504 -2.5352 -1.5135
2009 0.0961 -0.1635 2.91464 1.49951 2010 0.00226 0.82214 0.6306 0.2704
2011 -0.0061 -0.1613 0.02869 -0.0885
2012 0.00457 0.93952 0.23337 0.12223 2013 -0.003 1.76902 -0.1796 -0.0489
Respone Functions of ISPS Againts Some
Selected Macroeconomics Indicators
Pressure
-0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8 1 1,2 1,41 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Variance Decomposition of Some Selected
Macroeconomic Indicators
0 0,5 1 1,5 2 2,5 3 3,5 4 4,5
Magnitude and Some Selected Macroeconomic
Indicators Based On IRF and VDC Test
IRF ISPS M2RES IFL GRED REER VDC ISPS M2RES IFL GRED REER
4 0.9334 0.14122 -0.0333 0.05819 -0.0769 4 99.2544 0.01261 0.37153 0.20902 0.15245
8 1.08326 0.13864 -0.0741 0.0485 -0.1628 8 98.6431 0.07041 0.53147 0.21043 0.54464
12 1.11573 0.11016 -0.109 0.02559 -0.2474 12 98.0228 0.16928 0.63591 0.23126 0.94075
16 1.13034 0.07539 -0.1412 0.00116 -0.3291 16 97.449 0.28929 0.72113 0.25265 1.28791
20 1.14202 0.03807 -0.1711 -0.0229 -0.4074 20 96.9282 0.42212 0.79361 0.27134 1.58478
24 1.15297 -0.0006 -0.199 -0.0461 -0.4821 24 96.458 0.56222 0.85551 0.28722 1.83702
28 1.16347 -0.0398 -0.225 -0.0685 -0.5531 28 96.0355 0.70505 0.90826 0.30063 2.05061
Strengthening Microprudensial Policy
to Improve Stability of Islamic Banking
According Beikos (1997) and Errico and Farahbaskh
(1998), Islamic banks have higher levels of financial risk
than the conventional bank:
– Most of the investment bank in the form of Islamic profit sharing financing (PLS) scheme, the income of banks, which are generally sourced from PLS, has a relatively high variance
– The Islamic banks bore substantial liquidity risk due to a large number of assets in the form of non-liquid assets
– The Islamic bank is predominantly exposed to the risk of exchange rate because they are prohibited by Sharia to hedge its position
Three Things or Steps to Reduce /
Prevent Risks Arising from
Intermediation Activities
1) Application of Integrated Banking Model
2) Polling of Fund Concept
Five Hypotheses According Irfing
Fisher
• The money growth is source of inflation
• Money supply is exogenous in nature
• The money demand is a stable function of nominal
income and interest rate
• Injecting money into economy is not able to affect the
output in the long run
• The real of interest rate is merely influenced by
Instruments of Macroprudential
Policy
• Strengthening the resilience of capital and preventing
excessive leverage
• Managing intermediation and controlling credit risk, liquidity
risk, foreign exchange risk and interest rate risk, as well as other risks which could potentially become systemic
• Limiting exposure concentration
• Strengthening the resilience of the financial infrastructure
• Improving the efficiency of the financial system and financial
In the future, Instruments of Macroprudential
Policy should be directed towards
•
Instruments which affecting MV (instruments on the
financial sector, like current instruments)
•
Instruments which affecting PT (instruments on the
real sector)
•
Instruments which include conventional and Islamic
