Is Syariah System Better Than the Conventional System in Crisis?

This study aims to analyse the resilience of Islamic banks’ financial performance during the era of the COVID-19 crisis and the recovery compared to conventional banks. Islamic banks are unique as they do not use an interest system, but instead a profile/loss-sharing system which reflects their religious values. This profit/loss-sharing system has advantages, such as the ability of losses to be absorbed by depositors, a stable long-term performance, the avoidance of one-party exploitation, and the ability to provide financing with higher risks and longer terms. However, this profit-sharing system has a higher level of information asymmetry. This research was conducted in Indonesia with samples of Islamic banking companies and conventional banks. The company’s size was taken into consideration when selecting samples and the banking performance used was CAMEL (capital, asset quality, management, earnings and liquidity). The performance of the COVID-19 crisis period is measured during the period of 2020 (crisis) while the non-crisis period was measured in 2019. The results of the study found that Islamic banks were more stable during the crisis period as indicated by their levels of profitability and non performing financing. Meanwhile, conventional banks a decline. Management efficiency, capital and liquidity are better than conventional bank but not significant. Generally, the performance of conventional banks was higher than that of Islamic banks both in the pre-crisis and crisis periods, however, the fluctuation of the decline in the performance of conventional banks due to the crisis was higher, while Islamic banks were more stable and even experienced improvements during the crisis period.