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The determinants of deposits in Islamic and conventional banks: an Indonesian study

Author

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  • Eko Fajar Cahyono
  • Lina Nugraha Rani
  • M. Fariz Fadillah Mardianto

Abstract

Deposits are an important source of liquidity for banking operations and become the determinant of a country's savings. Our paper tries to examine the effect of interest rates on the total deposits of Indonesian Conventional and Islamic banks. Using Indonesian banking data sources from January 2018 to January 2020 and generalised method of moments (GMM) regression models, our empirical result shows that interest rates significantly positively affect conventional bank deposits. When the Central bank raises interest rates, commercial banks will increase lending rates and pay higher interest rates to depositors. In addition, the Islamic Banking Rate of Return also has a significant positive effect on deposits. Therefore, the higher interest rates lead to the higher bank's overall average deposits.

Suggested Citation

  • Eko Fajar Cahyono & Lina Nugraha Rani & M. Fariz Fadillah Mardianto, 2022. "The determinants of deposits in Islamic and conventional banks: an Indonesian study," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 15(3), pages 273-292.
    • Handle: RePEc:ids:ijmefi:v:15:y:2022:i:3:p:273-292
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