Profitability Response of Sharia Banking on Macroeconomic Variable Conjunctions in Indonesia with Vector Error Correction Model (VECM) Approach

DOI

10.2991/aebmr.k.211207.019How to use a DOI?

Keywords

Islamic Banking; Macroeconomics; Profitability; VECM

Abstract

Bank profitability can be determined by factors that can be controlled by management and factors beyond the control of company management. The factors that can be controlled by management are factors that describe the policies and decisions of the bank’s management itself, such as fundraising, capital management, liquidity management, and cost management. Meanwhile, factors beyond management’s control include environmental factors and bank characteristics, environmental factors include market structure, regulation, inflation, interest rates, and market growth. Conditions in national Islamic banking have slow growth, it is suspected that the sluggish growth rate of Islamic banking is more due to factors that cannot be controlled. This study aims to analyze the response of Islamic banking profitability to the conjuncture of macroeconomic variables in Indonesia. This research was conducted in 2021, using quantitative methods that are causal and secondary data types sourced from the Indonesia Stock Exchange (IDX) with purposive sampling from 2010 to 2019. The analytical tool used in this study is the Vector Autoregression (VAR) method. If the data used is stationary at the level, but if the data used is stationary at the first difference, then proceed with the Vector Error Correction Model (VECM) method. The results of the Impulse Response Function (IRF) show that the conjuncture of national income, interest rates, inflation, the amount of interest in circulation and the exchange rate fluctuates at the beginning of the period. The fluctuating conjuncture at the beginning of the period identified that these variables in the short term experienced instability. However, in the long term these shocks began to stabilize and began to reach equilibrium in period 17. National income and money supply responded positively, while interest rates, inflation and exchange rates responded negatively to the profitability of Indonesian Islamic banking. Suggestion Bank Indonesia should be able to make policies that are expansive towards the existence of Islamic banks so that Islamic banks can compete with other financial institutions while interest rates, inflation and exchange rates responded negatively to the profitability of Indonesian Islamic banking. Suggestion Bank Indonesia should be able to make policies that are expansive towards the existence of Islamic banks so that Islamic banks can compete with other financial institutions while interest rates, inflation and exchange rates responded negatively to the profitability of Indonesian Islamic banking. Suggestion Bank Indonesia should be able to make policies that are expansive towards the existence of Islamic banks so that Islamic banks can compete with other financial institutions.

Copyright

© 2021 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article under the CC BY-NC license.

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TY  - CONF
AU  - Syarief Gerald Prasetya
AU  - Waluyo Waluyo
PY  - 2021
DA  - 2021/12/07
TI  - Profitability Response of Sharia Banking on Macroeconomic Variable Conjunctions in Indonesia with Vector Error Correction Model (VECM) Approach
BT  - Proceedings of the Conference Towards ASEAN Chairmanship 2023 (T-A-C 23 2021)
PB  - Atlantis Press
SP  - 123
EP  - 130
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.211207.019
DO  - 10.2991/aebmr.k.211207.019
ID  - Prasetya2021
ER  -