| dc.description.abstract | Most of Indonesia Islamic rural banks (IRBs) are operating in the rural areas, small towns or suburbs and focusing more on SMEs financing. The amount of financing disbursed by such banks to SMEs continued to increase from 2011 to July 2016, in contrast to Islamic banks which focused more on non-SME sectors. It indicates that the development of IRBs indirectly might also develop the small industry sector that is driven by SM Es. Unfortunately, Indonesia IRBs have poor financial performance. Therefore, it is not surprising when the Deposit Insurance Agency of Indonesia announced that there were five IRBs which had been liquidated throughout the year 2009 to 2016. This study aims to determine the possibility of financial distress on IRBs. The
measurement of the financial distress prediction in such banks is conducted by using a financial ratio approach which measures profitability (ROA), liquidity (LDR), efficiency (NPL and operating expenses to operating income or OCOI) and capital adequacy (CAR) of 158 banks during 2013 to 2016. The panel estimation model using discriminant analysis is applied in predicting the financial distress on Indonesia IRBs. The results are that, firstly, LDR, NPL, and OCOI are the most significant variables in predicting financial distress on IRBs, while CAR is not the right variable. The second is in further analysis of LDR shows that most IRBs are quite aggressive in distributing credit to SMEs, which are riskier than other economic sectors. Meanwhile, a deeper analysis of OCOI shows that the highest cost component of the IRBs' operational costs on average is the personal cost. It might happen if the bank's management does not have good capability in managing its human resources, so the high personnel cost increases are not followed by the improvements in their performance. One indicator of the employees' low performance of such banks is their low ability in credit analysis, which is shown by the high non-performing loans in their banks. If these inefficient conditions keep continuing, unnoticed by the owners and management of the bank, they might really deal with financial distress in the future, which could lead to bankruptcy. | en_US |
