ANALYSIS THE IMPACT OF SELECTED MACROECONOMIC VARIABLES TOWARDS THE RESILIENCE OF ISLAMIC BANKING IN INDONESIA PERIOD 2010 - 2017
Abstract
The interconnectedness and interdependences of global economy have resulted the heightened of global financial market turbulence. Consequently, shocks which are originated from one economy, are easily transmitted into entire economy. The economic disturbance becomes unpredictable and worsen the vulnerability of Islamic banking in Indonesia. Therefore, maintaining the resilience is important by analyzing sources of shocks leading to Islamic banking’s vulnerability. The study aims at analyzing source of shocks by selecting some macroeconomic indicators as leading factors and constructing proxy for resilience measure. The study utilizes time series data in quarterly basis spanning from 2010Q1 to 2017Q4. The independent variable in this research is the resilience index of Islamic banking. the resilience of Islamic banking is formed through 3 individual indexes of banking variables including, Capital Adequacy Ratio (CAR), Return on Assets (ROA), and Third Party Funds (DPK). Meanwhile, the independent variables are selected macroeconomic variables, including Gross Domestic Product, Inflation Rate, Exchange Rate. The findings show that gross domestic product and inflation rate have positive and significant impact toward the resilience of Islamic banking. Meanwhile, exchange rate has negative and significant impact towards the resilience of Islamic banking. Generally, the resilience of Islamic banking in Indonesia is fluctuated, given that dynamic and unabsorbed shocks transmitted into Islamic banking system from macroeconomic indicators. Finally, the study suggest that monetary and government authorities should regularly monitor the GDP growth, inflation and nominal exchange rate as important indicators affecting Islamic banking operations.