Haryanto, Sugeng and Safriliana, Retna and Ridloah, Siti and Ariefudin, Muhammad Umar and Khotimah, Lidia Khusnul (2024) Determinants of risk in indonesian islamic banking: An empirical investigation. Jurnal Ekonomi dan Keuangan Islam [SHARE], 13 (1). pp. 24-42. ISSN ISSN: 2089-6239 ; ESSN: 2549-0648

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Abstract

Islamic banking has witnessed significant growth globally, including in Indonesia, with expansions in both fund mobilization and financing activities. This study analyzes the determinants of risk in Indonesian Islamic banks from 2009 to 2022, focusing on the effects of financing-to-deposit ratio (FDR), financing growth, efficiency, company size, capital adequacy ratio (CAR), and third-party fund (DPK), on non-performing financing (NPF). Utilizing unbalanced panel data and multiple linear regression, the research finds that financing growth and efficiency have negligible effects on risk. In contrast, FDR, company size, CAR, and DPK significantly influence it. Higher FDR is linked to increased risk, while larger banks and higher CAR are associated with reduced risk. The results suggest that Islamic banks should balance financing and deposits to manage risk effectively and emphasize the importance of efficient operations and sustainable growth. This research is limited to the internal aspects of banks as determinants of FDR. Future research could examine external factors and alternative risk measures to deepen the understanding of risk in Islamic banking. Keywords: Bank capital, Bank risk, Islamic Bank, and Non-performing financing

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