The Effect of Internal Factors and Exchange Rate on Sharia Banking Liquidity in Indonesia (original) (raw)
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Islamic banking and finance has shown progressive development all over the world since its inception as a commercial banking model in mid-1970s. Indonesia, as the largest Moslem nation in the world, has initiated some policies to expand the Islamic banking industry in the country. Similar to conventional banks, Islamic banks face a number of risk areas, which may affect their performance and operations. One of such risk areas is liquidity risk, which shows additional features in the case of Islamic banks. Both the international banking standards and the Sharia guidance suggest that banks should have: robust liquidity risk management policies, a responsive asset and liability committee, effective information and internal control systems and, methods for managing deposits to reduce on-demand liquidity, to manage liquidity risk. The aim of this research, hence, is to analyze the management of liquidity risk in Islamic banks through balancing assets and liabilities with the ultimate obj...
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Liquidity has always been one of the most important for banking industry resilience. Due to this importance, a study concerning the factors associated with Financing to Deposit ratio (FDR) needs to be done. This study will be devoted to analyze the structural relationship of internal performance of shariah banking industry indicator such liquid assets to short term funding ratio (STM), non performing financing (NPF), profit and the the external indicators such policy rate (BI rate), inflation, Industrian Production Index (IPI), and exchange rate. The research will try to compare the response or sensitivity of Financing to Deposits ratio to the changes of those indicators. Using monthly data from 2001 to 2015 and conducted using VAR/VECM model, we found that in the long run, the external factor exchange rate and BI rate are the most significantly cointegrated with FDR ratio. In the short run, the movement of FDR itself, NPF BI rate, IPI and Inflation are positively responsed by FDR. On the other hand, the response of FDR to STM, Profit, and exchange rate are negative. Furthermore, using FEVD we found the most contributing in FDR ratio variability is FDR ratio itself and the external indicators side are IPI and exchange rate.
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MPRA Paper, 2017
Islamic banking industry is growing in Indonesia. Nevertheless, the growth in the industry has its limitation of choices for liquidity management, in terms of Islamic money market and sovereign sukuk market. In comparison to Malaysia, Indonesia started its Islamic money market and sovereign sukuk market in 2008, much later than Malaysia, which began in 1994, even though Indonesia has bigger potential for Islamic banks growth due to the size of its muslim population and its economy. This paper seeks to investigate the impact of the Islamic money market development on the Indonesian Islamic Bank's operational aspects. Logically, if the development of Islamic interbank market had successfully improved the liquidity management practices, then this interbank market would affect the operational indicators of the Islamic banks. To achieve this, the paper tested whether two variables from Islamic money market, i.e SBIS rate (Sertifikat Bank Indonesia Syariah rate), the benchmark rate generated from Islamic money market auction, and Islamic money market transactions volume, serve as signal to the changes of the operational indicators of the Islamic banks. The paper used one of time series technique called Auto Regressive Distributed Lag (ARDL) for testing the relationships amongst operational variables: total costs, total mudharabah deposits, total equity-based financing, banks' capital, profit sharing distribution, non-operating income, and Islamic money market variables: SBIS rate and Islamic Money Market transaction volume. Our findings tend to indicate that there had been an impact of Islamic money market activities on the operational indicators of Islamic banks in Indonesia, which implies that the initial development of Islamic money market had been on the right track in facilitating the Indonesian banks' liquidity management. The findings also suggest that future development of Islamic money market and capital market are essential to improve the liquidity management of Islamic banks in Indonesia.