DO ISLAMIC BANKS IN INDONESIA TAKE EXCESSIVE RISK IN THEIR FINANCING ACTIVITIES?

Muhamad Anindya Hiroshi Purbayanto (), Taufik Faturohman (), Yulianti () and Arson Aliludin ()
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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

Journal of Islamic Monetary Economics and Finance, 2022, vol. 8, issue 1, 149-160

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.

Keywords: Risk taking behavior; Non-performing financing (NPF); Threshold regression; Islamic banks (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:idn:jimfjn:v:8:y:2022:i:1h:p:149-160

DOI: 10.21098/jimf.v8i1.1431

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