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Is Islamic Bank More Stable Than Conventional Bank? Evidence From Islamic Rural Banks in Indonesia

Agus Widarjono, M. B. Hendrie Anto and Faaza Fakhrunnas

International Journal of Financial Research, 2021, vol. 12, issue 2, 294-307

Abstract: This study investigates whether Islamic rural banks perform better than conventional rural banks as their competitor in Indonesia. To measure Islamic rural banks' financial performance, we apply financial stability using Z-score and profitability using the return on assets. We use monthly time series data from January 2009 to December 2018. The dynamic regression of the Autoregressive Distributed Lag (ARDL) model is then employed. The results report that the Z-Score of Islamic rural banks is higher than the Z-Score of conventional rural banks. This finding shows that Islamic rural banks are less risky than conventional rural banks. However, the Islamic rural banks' financial stability is very vulnerable to changes in equity, output, and inflation than conventional rural banks. Although the Islamic rural banks' profit rate is lower compared to conventional rural banks, it is considered more stable. The profit of Islamic rural banks is affected by size, equity, domestic output, and inflation.

Keywords: Islamic rural bank; financial stability; profitability; Autoregressive Distributed Lag Model; Indonesia (search for similar items in EconPapers)
Date: 2021
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DOI: 10.5430/ijfr.v12n2p294

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Handle: RePEc:jfr:ijfr11:v:12:y:2021:i:2:p:294-307