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Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors

The banking industry necessitates implementing an early warning system to effectively identify the factors that impact bank managers and enable them to make informed decisions, thereby mitigating systemic risk. Identifying factors that influence banks in times of stability and crisis is crucial, as...

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Main Authors: Robani, Anidah, Mawardi, Imron, Widiastuti, Tika, Fanani, Sunan, Al Mustofa, Muhammad Ubaidillah, Bakri, Mohammed Hariri
Format: Article
Language:English
Published: Public Library of Science 2024
Online Access:http://eprints.utem.edu.my/id/eprint/27506/2/003662804202404044780.PDF
http://eprints.utem.edu.my/id/eprint/27506/
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0301398
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spelling my.utem.eprints.275062024-07-25T11:32:27Z http://eprints.utem.edu.my/id/eprint/27506/ Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors Robani, Anidah Mawardi, Imron Widiastuti, Tika Fanani, Sunan Al Mustofa, Muhammad Ubaidillah Bakri, Mohammed Hariri The banking industry necessitates implementing an early warning system to effectively identify the factors that impact bank managers and enable them to make informed decisions, thereby mitigating systemic risk. Identifying factors that influence banks in times of stability and crisis is crucial, as it ultimately contributes to developing an improved early warning system. This study undertakes a comparative analysis of the stability of Indonesian Islamic and conventional banking across distinct economic regimes-crisis and stability. We analyze monthly banking data from December 2007 to November 2022 using the Markov Switching Dynamic Regression technique. The study focuses on conducting a comparative analysis between Islamic banks, represented by Islamic Commercial Bank (ICB) and Islamic Rural Bank (IRB), and conventional banks, represented by the Conventional Commercial Bank (CCB) and Conventional Rural Bank (CRB). The findings reveal that both Islamic and conventional banks exhibit a higher probability of being in a stable regime than a crisis regime. Notably, Islamic banks demonstrate a greater propensity to remain in a stable regime than their conventional counterparts. However, in a crisis regime, the likelihood of recovery for Sharia-compliant institutions is lower than for conventional banks. Furthermore, our analysis indicates that larger banks exhibit higher stability than their smaller counterparts regarding assets and size. This study pioneers a comprehensive comparison of the Z-score, employed as a proxy for stability, between two distinct classifications of Indonesian banks: Sharia (ICB and IRB) and conventional (CCB and CRB). The result is expected to improve our awareness of the elements that affect the stability of Islamic and conventional banking in Indonesia, leading to a deeper comprehension of their dynamics. Public Library of Science 2024-04 Article PeerReviewed text en http://eprints.utem.edu.my/id/eprint/27506/2/003662804202404044780.PDF Robani, Anidah and Mawardi, Imron and Widiastuti, Tika and Fanani, Sunan and Al Mustofa, Muhammad Ubaidillah and Bakri, Mohammed Hariri (2024) Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors. PLoS ONE, 19. pp. 1-15. ISSN 1932-6203 https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0301398 10.1371/journal.pone.0301398
institution Universiti Teknikal Malaysia Melaka
building UTEM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Teknikal Malaysia Melaka
content_source UTEM Institutional Repository
url_provider http://eprints.utem.edu.my/
language English
description The banking industry necessitates implementing an early warning system to effectively identify the factors that impact bank managers and enable them to make informed decisions, thereby mitigating systemic risk. Identifying factors that influence banks in times of stability and crisis is crucial, as it ultimately contributes to developing an improved early warning system. This study undertakes a comparative analysis of the stability of Indonesian Islamic and conventional banking across distinct economic regimes-crisis and stability. We analyze monthly banking data from December 2007 to November 2022 using the Markov Switching Dynamic Regression technique. The study focuses on conducting a comparative analysis between Islamic banks, represented by Islamic Commercial Bank (ICB) and Islamic Rural Bank (IRB), and conventional banks, represented by the Conventional Commercial Bank (CCB) and Conventional Rural Bank (CRB). The findings reveal that both Islamic and conventional banks exhibit a higher probability of being in a stable regime than a crisis regime. Notably, Islamic banks demonstrate a greater propensity to remain in a stable regime than their conventional counterparts. However, in a crisis regime, the likelihood of recovery for Sharia-compliant institutions is lower than for conventional banks. Furthermore, our analysis indicates that larger banks exhibit higher stability than their smaller counterparts regarding assets and size. This study pioneers a comprehensive comparison of the Z-score, employed as a proxy for stability, between two distinct classifications of Indonesian banks: Sharia (ICB and IRB) and conventional (CCB and CRB). The result is expected to improve our awareness of the elements that affect the stability of Islamic and conventional banking in Indonesia, leading to a deeper comprehension of their dynamics.
format Article
author Robani, Anidah
Mawardi, Imron
Widiastuti, Tika
Fanani, Sunan
Al Mustofa, Muhammad Ubaidillah
Bakri, Mohammed Hariri
spellingShingle Robani, Anidah
Mawardi, Imron
Widiastuti, Tika
Fanani, Sunan
Al Mustofa, Muhammad Ubaidillah
Bakri, Mohammed Hariri
Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors
author_facet Robani, Anidah
Mawardi, Imron
Widiastuti, Tika
Fanani, Sunan
Al Mustofa, Muhammad Ubaidillah
Bakri, Mohammed Hariri
author_sort Robani, Anidah
title Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors
title_short Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors
title_full Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors
title_fullStr Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors
title_full_unstemmed Comparative stability analysis of Indonesian banks: Markov switching-dynamic regression for Islamic and conventional sectors
title_sort comparative stability analysis of indonesian banks: markov switching-dynamic regression for islamic and conventional sectors
publisher Public Library of Science
publishDate 2024
url http://eprints.utem.edu.my/id/eprint/27506/2/003662804202404044780.PDF
http://eprints.utem.edu.my/id/eprint/27506/
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0301398
_version_ 1806429979734441984
score 13.211869

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