Islamic bank credit risk : macroeconomic and bank specific factors

Abstract

The purpose of this research is to investigate the influence of macroeconomic and banking factors on credit risk in Islamic banking. The methodology used is panel data regression analysis. The data set is consisting of secondary data from banking financial statements contained in the respective websites, as well as macroeconomic variables obtained from the Central Bureau of Statistics and Central Bank Indonesia for the period 2010 to 2016. The results support the hypothesis that the SIZE of the bank is influencing positively and significantly the credit risk. Other variables tested were financing expansion, financing quality, GDP and inflation which have been proven to influence negatively and significantly the credit risk. These results support the results of another study by Effendi and Yuniarti (2018) regarding the influence of macroeconomic variables on credit risk. The contribution of this article is that similar conclusions have been made regarding the influence of banking factors on credit risk. Both results lead to the conclusion that Islamic banking could be affected negatively if it does not regulate the quality and the expansion of its financing properly.