ASSESSING ISLAMIC BANKING STABILITY
IN INDONESIA
Dimas Bagus Wiranata Kusuma Dedy Fahrul Rahman
Muhammad Fikri Maududi
Department of Economics,
International Program For Islamic Economics and Finance (IPIEF)
Universitas Muhammadiyah Yogyakarta
I N D O N E S I A
Country Period Cost Recapitulation over GDP Spain 1977-1985 16.8
United States (Saving and Loans) 1984-1991 3.2 Scandinavia
Finland 1991-1993 8.0 Norway 1987-1989 4.0
Sweden 1991 6.4
Latin America
Chile 1981-1983 41.2
Mexico 1995 13.5
Asia
Indonesia 1997-1998 34.5 Korea 1997-1998 24.5 Malaysia 1997-1998 19.5 Philippines 1981-1987 3.0
Thailand 1997-1998 34.5
FIGURE 1 COMPOSITION OF ASSETS AMONG FINANCIAL INSTITUTIONS PER DECEMBER 2014
TABLE 1 COST RECAPITULATION OF BANKING CRISIS FIGURE 2. ISLAMIC BANKING DEVELOPMENT IN INDONESIA
RESEARCH QUESTIONS
How is the level of stability of Islamic banking in Indonesia?
THEORETICAL AND LITERATURE REVIEW
1. Theory of financial system stability – The ability of the system to survive from
various shocks that can avoid from a financial crisis
2. The importance microprudential policy – This policy is intended to maintain the
resilience of individual banks in order to support the stability of banking system and financial system
3 The need for harmonization between Macroprudential and Macroeconomic
Policy
4 To assess the level of stability in Islamic banking where some financial ratios
DATA AND METHODOLGY
No Items
1. Research approach: quantitative time series
2.
3.
4.
Dependent Variables: The Islamic Banking Stability Index (ISPS) -weighted average index consisting of Non-Performing Financing (NPF), Return on Assets (ROA) and the Financing of Deposit Ratio (FDR) of Islamic banking
Independent Variable: M2/Reserve Ratio, Inflation, Real Effective Exchange Rate (REER), Financing Growth.
Method: Logit Model, VAR (Vector Autoregressive)
FINDINGS AND DISCUSSIONS
· Prompt Indicator
· Composite Indicator
· Outlook Financial System
Surveillance
Stress Test Risk Assessment
Regulator, Public, and Market Risk Signaling
6 5
Instrument of Macroprudential Policy Design and Policy
Implementation Policy Effectiveness Assessment
Element 1
Under or Closer to Threshold Macroprudential Surveillance Process
Planning Process & Implementation of Macroprudential Policy
Data, Information, and Research
CONVENTIONAL MACROPRUDENTIAL FRAMEWORK IN INDONESIA
INSTRUMENT LTV GWM LDR Transp’cyCBRT NOP CCB Capital Surchg.
OBJECTIVE Credit-related Credit,
Liq.-related
Single/Multiple Single Multiple Single Single Single Single Broad-based/
Targeted Targeted Targeted Broad-based Targeted Broad-based Targeted Fixed/
Time-varying Fixed Time-varying Fixed Fixed Time-varying Fixed
Rule/ Discretion Rule Rule Rule Rule Discretion Rule/ Rule
Category of instrument
Need repeated calibration
Developed to mitigate systemic risk
Developed to mitigate systemic risk
Need repeated calibration
Developed to mitigate systemic risk
Developed to mitigate systemic risk Source: Bank Indonesia
FINDINGS AND DISCUSSIONS
THE MOVEMENT OF ISLAMIC BANKING STABILITY INDEX IN INDONESIA
FINANCIAL SYSTEM STABILITY INDEX INDONESIA Heat Map Risk Level Range
Green Normal ISPS < -6.98
Yellow Alert -6.98 < ISPS < - 6.93
Orange extra alert -6.93 < ISPS < - 6.75
Crisis Red -6.75 < ISPS < - 6.06
Year
PKK
PGK
PPK
PLK
2004-0.0377
1.677 0.31396 -0.3564
20050.03295 4.80093 0.86723 0.50411
2006-0.0287 0.89575 -0.2505 -0.1953
20070.02885 1.21101 1.18474 0.64013
2008-0.0999 1.22504 -2.5352 -1.5135
20090.0961 -0.1635 2.91464 1.49951
20100.00226 0.82214 0.6306 0.2704
2011-0.0061 -0.1613 0.02869 -0.0885
20120.00457 0.93952 0.23337 0.12223
2013-0.003 1.76902 -0.1796 -0.0489
2014-0.0093 -0.147 0.39647 0.01606
-0,8-0,6
ISPS M2RES IFL GRED REER
THE PROBABILITY MAGNITUDE OF ISLAMIC BANKING INSTABILITY IN VARIOUS THRESHOLD
LEVELS IN 2004-2014 (YEARLY BASIS)
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 30 1.16857 -0.0595 -0.2373 -0.0793 -0.5871 30 95.841 0.77631 0.93159 0.30651 2.14463
VARIANCE DECOMPOSITION OF SOME SELECTED MACROEOKONOMIC
INDICATORS
MICROPRUDENSIAL POLICY
SUMBER DANA PENGGUNAAN DANAA/D PRIORITAS
P R O S E S iGiro
iTabungan
iDeposito Jangka Menengah Dana Jangka
Pendek
Dana Jangka Menengah Dana Jangka
Panjang iDeposito Jangka
Panjang
SUMBER DANA PENGGUNAAN DANAA/D PRIORITAS
POOLING APPROACH OF FUNDS
CONCLUSIONS AND RECOMMENDATIONS
Conclusions
1. Based on logistic test of various thresholds (Kamisnky, Garcia, Lestano, and Park), we found that there
was very small possibility of pressure from selected macroeconomic variables in providing the possibility of crisis or instability in Islamic banking
2. Based on VAR/VECM test, it shows that both the response and the contribution of selected
macroeconomic variables are very small in transmitting pressure and contributing to the movement of the ISPS variable.
3. This paper offers three concepts in enhancing the resilience of the Islamic banking under
microprudential framework; (1) The application of integrated banking models; (2) the development of pooling of funds concept; and (3) development of allocation of funds concept.
Recommendations
1. Need to develop microprudensial instrument of real sector.
E N D OF P R E S E N T A T I O N
THANK YOU FOR YOUR PRECIOUS TIME
MAY ALLAH BLESS US WITH KNOWLEDGE AND WISDOM
