Exploring the dynamic nexus between Indonesian economic forces and Islamic banking financial performance

Retnasih, Nora Ria ORCID: https://orcid.org/0000-0001-5915-8871 (2023) Exploring the dynamic nexus between Indonesian economic forces and Islamic banking financial performance. Journal of Islamic Economics and Finance Studies, 4 (2). pp. 236-256. ISSN 27236749

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Abstract

World economic uncertainty during the pandemic resulted in a decline in overall economic activity. This has an impact on the financial performance of Islamic banks, especially those related to business and consumer financing. Most customers face financial difficulties and ultimately have the potential for increased credit risk. So, there is a mutual connection between macroeconomic indicators and the financial performance of Islamic banks. This research aims to measure the magnitude of the influence of economic variables on the financial performance of Indonesian Sharia Banking for the period 2020 quarter 1 to 2022 quarter 4. The method used in this quantitative research is Panel Vector Autoregressive (PVAR). The research results show that the exchange rate significantly affects Islamic banks' financial performance. In the long term, exchange rate shocks positively impact the FDR and NPF variables, while the ROA and CAR variables give a negative response. The exchange rate also makes the largest contribution to all financial performance variables compared to interest rates and the consumer price index. The implication is for policymakers to always maintain domestic economic stability, especially the exchange rate. Exchange rate stability reflects price stability as measured by inflation and will have an impact on other economic indicators.

Item Type:	Journal Article
Keywords:	consumer price index; exchange rate; financial performance; interest rate
Subjects:	14 ECONOMICS > 1401 Economic Theory > 140102 Macroeconomic Theory 14 ECONOMICS > 1402 Applied Economics > 140207 Financial Economics 14 ECONOMICS > 1402 Applied Economics > 140212 Macroeconomics (incl. Monetary and Fiscal Theory) 14 ECONOMICS > 1403 Econometrics > 140304 Panel Data Analysis
Divisions:	Faculty of Economics > Department of Management
Depositing User:	Nora Ria Retnasih
Date Deposited:	05 Apr 2024 09:14

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