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Do Islamic Banks In Indonesia Take Excessive Risk In Their Financing Activities?

Author

Listed:
  • Muhamad Anindya Hiroshi Purbayanto

    (School of Business and Management Institut Teknologi Bandung, Bandung, Indonesia)

  • Taufik Faturohman

    (School of Business and Management Institut Teknologi Bandung, Bandung, Indonesia)

  • Yulianti

    (School of Business and Management Institut Teknologi Bandung, Bandung, Indonesia)

  • Arson Aliludin

    (School of Business and Management Institut Teknologi Bandung, Bandung, Indonesia)

Abstract

This study analyzes the risk-taking behavior of Indonesian Islamic Banks by examining whether the relation between financing Growth rate and non-performing financing (NPF). We employ threshold regression models and bank-level data of 24 Islamic banks (full-fledged Islamic banks and Islamic banking windows) covering the period from 2009 to 2019. We find evidence for the excessive risk-taking of Islamic Banks. More specifically, while the relation between NPF and FGR is negative when the one-lagged NPF is below the threshold (estimated to be 5.42%), it turns positive once it is above the threshold. This means that banks with NPF above the 5.42 percent threshold tend to take risky loans.

Suggested Citation

  • Muhamad Anindya Hiroshi Purbayanto & Taufik Faturohman & Yulianti & Arson Aliludin, 2022. "Do Islamic Banks In Indonesia Take Excessive Risk In Their Financing Activities?," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 8(1), pages 149-160, February.
    • Handle: RePEc:idn:jimfjn:v:8:y:2022:i:1h:p:149-160
    DOI: https://doi.org/10.21098/jimf.v8i1.1431
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    More about this item

    Keywords

    Risk taking behavior; Non-performing financing (NPF); Threshold regression; Islamic banks;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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