Comparison of Short-Term and Long-Term Estimation of
Syariah Banking Performance
HERU WAHYUDI
Economics Development Department,
Universitas Lampung,
INDONESIA
UKHTI CIPTAWATY
Economics Development Department,
Universitas Lampung,
INDONESIA
ARIVINA RATIH
Economics Development Department,
Universitas Lampung,
INDONESIA
RAHMAH DIANTI PUTRI
Economics Education Study Program,
Universitas Lampung,
INDONESIA
MAHYUDIN AHMAD
Department of Economics,
Universiti Teknologi MARA,
MALAYSIA.
ARYAN DANIL MIRZA. BR
Accounting Department,
Universitas Lampung,
INDONESIA
Abstract: Syariah banking system is one of the exciting research objects and has the potential to continue to be
developed. Sharia banking is a new way out of banking. On a more macro level, the banking system affects
banking performance on economic growth. Islamic banking is also stated to contribute better than conventional
banking in achieving SDG points. The primary purpose of this study is to examine the development of
conventional and Islamic banks in the future for short- and long-term analysis. The analysis will discuss how
productive assets, bank profits, and third-party funds are both types of banking and how these three things
contribute to economic growth for the next five years. Research analysis will be able to provide a comparison
of the application of the short and long-term performance of sharia concepts to economic growth.
Furthermore, it will be seen how the contribution of the two existing periods of the term of banking to
economic growth, which one has a more significant impact on economic growth. Data was gathered for eleven
years to test these relationships and analyzed accordingly. Besides descriptive analysis, correlations, and
regression, mediation analysis was carried out using Vector Autoregression (VAR). VAR is a model that can
analyze the interdependence relationship between time series variables. The results proved that profits, credits
and assets significantly affect the short and long term. This study has some meaningful contributions towards
both short and long practical knowledge of the subject matter, especially for banking and Government.
Key-Words: - Syariah banking, VAR, short and long-term performance, economic growth.
Received: August 16, 2022. Revised: November 23, 2022. Accepted: January 11, 2023. Published: February 23, 2023.
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1 Introduction
Islamic banking was developed in Indonesia to
provide alternative banking services to the public in
addition to the conventional banking that existed
before. Since 2008 the Indonesian banking system
began to recognize two banking systems. Although
it is a new player, the development of Islamic
banking is quite good. The movement of Islamic
Banking can be seen from the average asset growth
of more than 65 per cent per year in the last five
years from 2015 to 2020, [1].
Two banking systems in one country are
interesting research objects and have the potential to
continue to be developed. The variety of existing
research related to Islamic and conventional banking
usually compares the performance of conventional
and Islamic bank units, [2], and the existing large
conventional banks will be compared in
collaboration with Indonesian Islamic banking, [3].
With almost the same selection of variables, the two
studies found that Islamic banking performs better
than conventional banking.
The proposed research topic will not compare
the performance of banks within the scope of
business units but in a more macro scope, namely
the influence of banking performance on economic
growth. The performance of Islamic banking has a
positive effect on economic growth in five countries
using the GMM Panel method, but only for the
profitability variable, [4]. Islamic banking is also
stated to contribute better than conventional banking
in achieving SDG points. The study used the
method of Structural Equation Model (SEM) or
Partial Least Square (PLS), [5]. Different results
were found when the performance of Islamic
banking was examined at the provincial level in
Indonesia; all variables were not statistically proven
to affect economic growth. In addition, the
investment financing variable has a negative value,
[6].
Indonesia is an exciting research area because
most of the population is Muslim and has two
banking systems. Based on many previous research
findings, the performance of Islamic banking is
generally stated to be better than conventional
banking. However, the effect of Islamic banking
performance on economic growth has yet to provide
consistent results. In addition, many studies still use
cross-section or panel data. Because of these things,
the main problem of this research is "Is Islamic
banking more promising than conventional banking
in the future”?
Banking is one of the essential components in
the economy of every country; Indonesia is no
exception, which has two service systems, Sharia
and conventional. Since the official use of Islamic
banking services, the public has reacted. Some
continue to use conventional banking services, some
switch to Islamic banking services, or some choose
both. This research seeks to provide an empirical
and scientific description of the banking system that
has the potential to be developed in the future. The
analysis is carried out neutrally without any
partiality to a particular system.
The research is expected to provide empirical
results that can be used for scientific development,
especially in economics related to the Indonesian
banking system. This study will predict how the best
model in conventional and Islamic banking.
Furthermore, a comparison of the performance of
each bank's economic variables on economic growth
will be obtained. Finally, this research will
implement a short-term and long-term analysis that
decides how to apply conventional and Islamic
banking in the future.
2 Literature Review
2.1 Conventional Banks
The definition of a bank based on Law No. 7 the
Year 1992 concerning a bank is a business entity
that collects money from the public in the form of
deposits that distributes it to the public in the form
of credit as well as other means to improve people's
living standards. In Indonesia, banks include
commercial banks and people's credit banks. Article
1 Paragraph 3 of Law No. October 1998 states that a
commercial bank is a bank that carries out ordinary
commercial activities and, based on sharia
principles, that their activity provides services in the
flow of payments. A conventional bank can be
defined as a commercial bank in Article 1 Paragraph
3 of Law No. October 1998, by omitting the phrase
"and or based on sharia principles," that is a bank
that carries out ordinary commercial activities that
provide services in payments, [1].
2.2 Islamic Banks
Islamic banks are banks that operate by not relying
on interest. Islamic banks can also be interpreted as
financial/banking institutions whose operations and
products are developed based on the Qur'an and
hadith of the Prophet SAW. The principles of
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Islamic banks are guided by the principles of
entrustment, profit sharing, rent, and service, [2].
2.3 Differences between Islamic Banks and
Conventional Banks
Conventional and Islamic banks have similarities in
several aspects, especially in money-receiving
techniques, computer technology remittance
mechanisms that use the general funding
requirements and others. The difference between
conventional banking and Islamic banking concerns
the legal aspects of the organizational structure of
the funded company as well as the working
environment, [3]. In the operating system of Islamic
banks, the fund owner invests his money in the
bank, not to get the bank's interest. Islamic banking
is undoubtedly different from conventional banking,
which offers interest and fund owners get
reciprocity from it. The motivation of the capital
collectors in Islamic banking is to benefit from the
return. Customer funds in Islamic banking are then
distributed to those in need (for example, business
capital), with a profit-sharing agreement as agreed,
unlike national banks that channel their funds to
anyone willing to pay the cost of capital.
In mobilizing customer funds, Islamic banks
carry out business activities by displaying Islamic
banking products such as current accounts based on
the wadiah principle, savings based on the principles
of wadiah and mudharabah, and time deposits based
on wadiah or mudharabah. However, in
conventional banking, the collection of own funds
can be in the form of paid-up capital, funds and the
sale of shares on the stock exchange, accumulated
retained earnings, reserves and share ratios, [4].
The third aspect of difference is related to the
funds raised by banks from the public. In the Sharia
system, banks carry out their activities through
benefits, which include buying and selling
transactions based on the principles of murabahah,
istisna', ijarah, ba'i salam and other buying and
selling. In addition, Islamic banks carry out
activities called Financing. This Financing adheres
to a profit-sharing system based on mudharabah,
musyarakah and other profit-sharing principles. The
third Islamic bank activity involves other Financing
based on the principles of hiwalah, Rahn, card,
buying, selling or guaranteeing at its risk third party
value as the letters issued based on genuine
transactions. All activities carried out by Islamic
banks are based on the principle of buying and
selling or hiwalah. The fourth activity carried out by
Islamic banks in collecting public funds is based on
sharia principles by only buying Government and or
Bank Indonesia securities issued based on sharia
principles. These four types of activities to collect
funds from the community have different principles
from the activities of conventional banks. Generally,
conventional banks run funds in the form of current
accounts and time deposits from individual
customers or legal entities or other ways of
collecting funds from depositors, such as new
banking products such as certificates of deposit and
savings checking accounts, [5].
2.4 Banking Assets
The definition of productive assets based on the
Decree of the Board of Directors of Bank Indonesia
No. 31/147/KEP/DIR dated 12 November 1998
stated the quality of Productive Assets. It concerns
the Quality of Productive Assets is the investment of
money in banks, both in Rupiah and foreign
currencies, in the form of credit, securities,
placement of interbank funds, participation,
commitment and contingencies in administrative
account transactions. The quality of productive
assets is assessed based on; business definitions and
financial instruments with an emphasis on the
debtor's cash flow and paying ability, [6]. However,
there are still assets unfavorable for a bank's
financial position, namely problematic productive
assets (NPLs), which are productive assets with less
current, doubtful, and bad asset quality. The amount
of NPL can be formulated as follows: NPL = Total
Non-Performing Loans /Total All loans. A bank has
a good NPL condition if the bank's NPL is below 5
per cent. Furthermore, Islamic banks can deposit
funds at Bank Indonesia and other Islamic banks so
that both are referred to as productive assets.
2.5 Banking Profit
Three products affect the growth of bank assets. In
Islamic banking, these three things are mudharabah,
musyarakah and murabahah. Meanwhile, in
conventional banking, several products are not
found in Islamic banking because they adhere to the
interest system. Conventional banking increases
the bank's profit by setting interest rates for the
public. There are variations in the activities of the
conventional bank, including; collecting funds from
the public in the form of deposits in the form of
current accounts, time deposits, certificates of
deposit, savings, and other forms equated. In
addition to that, providing loans, misusing a debt
recognition letter; buying, selling or guaranteeing at
its own risk or for the benefit and or order of its
customers; transferring money both for own benefit
and for the benefit of the customer; deposit funds
on, borrow funds from or lend funds to other banks,
either by mail, telecommunications means or by
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money orders, checks or other means, [7]. However,
activities in conventional banks have an inflation
risk because they are affected by interest rates. The
movement of interest rates will always overshadow
the movement of the bank's profit.
2.6 Placement of Third-Party Funds
In Islamic banking, the placement of third-party
funds is carried out with the principle of al-wadî'ah.
The customer entrusts the money or goods to the
bank as a pure entrustment, and the bank has no
right to use the money or goods deposited.
However, the bank may use it in certain economic
activities by seeking permission from the entrusted
customer, [3]. In conventional banking, the existing
fund-raising method is based on the theory
expressed by Keynes, which suggests that people
need money for three uses: transaction, reserve and
investment functions. This theory causes the fund-
raising product to be adjusted to these three
functions, namely in the form of current accounts,
savings and time deposits. In contrast, Islamic banks
do not take a single approach to provide fund-
raising products for their customers. The approach
seen from the source, Islamic bank funds consist of
capital, entrustment and investment, [6].
2.7 Past Research
One of the previous studies, [7], stated that
mudharabah financing and musyarakah financing
activities influence the development of Islamic bank
assets in Indonesia. Furthermore, it was found that
Islamic banks in Indonesia must continue to
increase company profits, especially in inspiring
distribution, because it is imperative to get income
that will affect the development of productive
assets. In other words, Islamic banking must
continue to be creative so that customers want to
invest in the bank so that sharia banks can ensure
profits from customer deposits to channels for the
public, such as third-party funds, so that sharia
banks will continue to develop. The growth of
sharia bank assets will be high.
Another study found that to obtain a good
performance predicate, both Islamic and
conventional must be more active in channelling
funds. Channelling funds in the form of a credit to
the real sector and Small and Medium Enterprises
(SMEs), trying to restructure bad loans to reduce
their value of bad loans. Banks must be able to
reduce operational costs, [1]. In addition, research
that analyzes the performance comparison between
conventional and Islamic banking shows that the
financial ratios owned by Islamic banks have better
performance than conventional banking, [5].
Furthermore, previous research has also found that
the latest development of Islamic banking shows a
desirable trend for third-party funding, n-based
funding, and total assets. The study showed that the
performance of banks measured by CAR and NPL
did not differ significantly among Islamic and
conventional banks. The efficiency with BOPO
proxies shows that conventional banks are better
than Islamic banks, and ROA and ROE measure that
profitability. Meanwhile, when viewed from
liquidity (LDR), Islamic banking is better than
conventional banks, [8]. However, unfortunately,
some of the previous studies that have been carried
out have yet to thoroughly analyse the comparison
of Islamic and conventional banks in the short and
short term.
2.8 State of Art
The performance of sharia regulations until
September 2021 continues to show positive
developments with Assets, Disbursed Financing
(PYD), and Third-Party Funds (DPK), which
continue to grow, [1]. Indonesia is the driver of the
developing of the sharia banking industry in Asia,
[9]. The Big market share of sharia banks positively
leads to the immense profit reflected by ROA &
ROE, [10]. So far, Syariah Bank in Indonesia
continues to show positive developments even
though various issues and strategic challenges still
need to be addressed. Based on the Sharia Bank
Transformation Study prepared by the Financial
Services Authority (OJK) in 2018, strategic issues
still affect the rapid development of Islamic banks,
including the emergence of significant variations in
business models and suboptimal quality and
quantity and also human capital. And a low level of
understanding and integration. On the other hand,
Financing disbursed by the banking industry in the
same period amounted to IDR 5,482.5 trillion or
contracted by a decrease of 2.7 per cent. So far,
positive expectations have been placed more on
Islamic banking.
Therefore, previous studies, [11], [12], [13],
have tried to compare financial performance
between conventional and Islamic banking. One of
the studies, [11], showed minimal differences in
indicators of concern for education and training (R
/D). Placement of securities in the Government
(GOVER), customer welfare (DP3) and guarantee
of third-party funds in the form of insurance
(INSUR), where of the four indicators, Islamic
banking is better than conventional banks. However,
previous studies, [12], [13], [14], [15], [16], have
yet to comprehensively analyse the performance of
the two types of banking: short-term and long-term
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events. This research will then discuss the future
development of conventional and Islamic banks.
The developed analysis will discuss how productive
assets, bank profits and third-party funds of both
types of banking and how these three things
contribute to economic growth for the next five
years. Research analysis will further compare the
application of conventional and Sharia concepts to
economic growth. Furthermore, it will be seen how
the contribution of the two types of banking exists
to economic growth, which significantly affects
economic growth.
3 Research Method
3.1 Data Type and Source
The data in the observation area is the State of
Indonesia coverage area. The data used is secondary
data (time series) with the time sequence of 2010-
2021, January to December (Quarters I, II, III, &
IV). Data sourced from Indonesian banking
statistics (SPI) convention performance and (SPI)
sharia performance from the Financial Services
Authority (OJK) and the Indonesian Central
Statistics Agency published on the official website.
3.2 Definition of Operational Variables
3.2.1 Economic Growth (Y)
Economic growth is the economic rate of the value
of goods and services in a certain period or the
growth rate of the Gross Domestic Product (GDP) in
Indonesia. This variable is with a per cent unit in
2010-2021 (Quarters I, II, III, & IV) in Indonesia.
3.2.2 Profit (LBA)
According to sharia banking, profit is the principle
of consensual consent, the principle of pleasure,
sincerity and accepting the existing risks. In Islam,
there is no limit to profit taking, even though taking
100% profit or profit as long as it does not contain
usury, deception, fraud and hoarding (monopoly).
This variable is in units of billions of Rupiah in
2010-2021 (Quarters I, II, III, & IV).
3.2.3 Financing to Non-Bank Third Parties
(FNB)
The explanation of Financing to Non-Bank Third
Parties is the provision of money or equivalent
claims in Rupiah and foreign currencies based on an
agreement or loan agreement. The agreements are
between the reporting bank and the bank, and the
third party is not a bank in principle in Sharia which
is profit sharing. This variable is in units of billions
of Rupiah in 2010-2021 (Quarters I, II, III, & IV).
3.2.4 Total Productive Assets (TPA)
According to sharia banking, Total Productive
Assets are the total assets owned by sharia
companies or sharia financial institutions that
support the operations of the companies and sharia
financial institutions. This variable is in units of
billions of Rupiah in 2010-2021 (Quarters I, II, III,
& IV).
3.3 Data Analysis Methods
The analysis used in this study uses the Vector
Autoregression (VAR) method of non-structural
models. Data analysis is carried out using a
descriptive quantitative approach. Quantitative
research is based on positivism, used to see specific
samples, [17]. The data used in this study is time
series data, so it is necessary to analyse the
interdependence between these variables. VAR is
one of the models that can analyse the
interdependent relationship between time series
variables.
VAR analysis is a handy analytical tool for
understanding reciprocal relationships between
economic variables and forming structured
economic models. The VAR model considers that
all economic variables are interdependent with
others, [18].
Ynt=
Where:
Ynt = Variable vector element
Y1t-i = Endogenous variable element in the previous
year
0 = Constant
βin, αin,... .. nin = Coefficient of endogenous variables
ent = Error term
This study uses the VAR model framework to
determine the macroeconomic conditions in the
banking sector. 1) The relationship of Islamic
banking conditions LBA, FNB, TPA with Economic
Growth, 2) Response of economic growth to shocks
from Islamic banking conditions LBA, FNB, TPA.
How significant is the performance of Islamic
banking LBA, FNB, and TPA to Indonesia's
economic growth? To answer all the questions in
this study using the VAR analysis method, if it is
not cointegrated, then the mathematical model
formed is as follows:
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1. The Long-Term of Equation of Islamic Banking
Performance:
2. The Short-Term of Equation of Conventional
Banking Performance:
Description:
LBA
:
Profit
FNB
:
Financing to Non-Bank Third Parties
TPA
:
Total Productive Assets
ƛ 1, ƛ 2, ƛ 3, ƛ 4
:
Short-term relationship coefficient
α0
:
Intercept Constant
β1, β2, β3
:
Long-term relationship coefficient
ECT
:
Error Correction Term
e
:
Error Term
j
:
Parameters (lag 1, 2,.... etc.)
3.4 Data Analysis Procedure
Fig. 1: Flow Image of VAR Model Formation
Source: [18].
4 Results and Discussion
4.1 Stationaryity Test
In fulfilling one of the assumptions in the time
series data test using VAR or VECM model
analysis, it is necessary first to conduct a
Stationarity test. The stationarity test used in this
study was a unit root test using the Augmented
Dickey-Fuller Test (ADF test) method.
Table 1. Unit Root Test Results of Islamic Bank
Performance at Level
Variable
ADF
Critical Value
Prob
Conclu
sion
1%
5%
10%
LBA
0,082
-3,57
-2,92
-2,60
0,961
Not
Stationary
FNB
-0,781
-3,57
-2,92
-2,60
0,815
Not
Stationary
TPA
-1,088
-3,57
-2,92
-2,60
0,712
Not
Stationary
Source: Eviews data processed, 2022.
The table 1 shows the unit root test using the ADF
at the level. Compare the value of the t-count with
the critical value for each variable. The unit root test
results by comparing the value of t-count with the
critical value for each, namely 1 per cent, 5 per cent,
and 10 per cent. It can be concluded that there are
no static variables at the level of Conventional Bank
Performance and Islamic Bank Performance
variables. The unit root test will be carried out again
on the first difference in each variable, and the
results can be seen in the table.
Table 2. Unit Root Test Results on First Difference
Islamic Bank Performance
Variable
ADF
Critical Value
Pr
ob
Concl
usion
1%
5%
10%
LBA
-6,753
-3,584
-2,928
-2,60
0,000
Statio
nary
FNB
-6,6266
-3,581
-2,926
-2,60
0,000
Statio
nary
TPA
-6,678
-3,581
-2,926
-2,60
0,000
Statio
nary
Source: Eviews data processed, 2022.
The table 2 shows the estimation results of the unit
root at the first difference level for all static
variables. The result means that the data used in this
study is integrated in order one or can be shortened
to I, [1], so data is free from spurious regression
problems. Therefore, the stationary requirements
have been met so that the next step can be further
data processing.
4.2 Determination of Optimum Lag
Determination of the optimum lag in this study
using a commonly used method, namely, the
smallest Akaike Information Criterion (AIC) value.
Based on the Akaike Information Criterion (AIC)
value, the optimum lag lengths are 3 and 4. So the
lag values that will be used for further research are
lags 3 and 4. The results of determining the lag
length are shown in the following tables:
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Table 3. Results of Determination the Optimum Lag
Performance of Islamic Banks
Islamic Banks
Lag
Akaike Information Criterion (AIC)
0
4,558677
1
-2,418129
2
-2,129152
3
-2,419670
4
-4,942302*
Source: Eviews data processed, 2022.
Information, (*): The smallest Akaike Information
Criterion (AIC) value
Based on the table 3 above, the determination of the
optimum lag used in the first equation model of
Conventional Bank Performance for the
VAR/VECM equation model is at lag three and the
second equation model of Islamic Bank
Performance is at lag 4.
4.3 VAR Stability Test
The VAR estimate has been formed, and a stability
condition check is carried out using the roots of
characteristic polynomials and inverse roots of AR
characteristic polynomials.
Table 4. Test Results of AR Characteristic
Polynomials
Equation Model Sharia
Performance
0.841778 - 0.939489
Source: Eviews data processed, 2022.
Table 4 shows that the modulus value of all
equation models is less than 1, so it can be
concluded that the VAR model is valid. After that,
VAR stability testing was carried out using inverse
roots AR characteristic polynomials shown in the
following figure:
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
-1.5 -1.0 -0.5 0.0 0.5 1.0 1.5
Inverse Roots of AR Characteristic Polynomial
Fig. 2: VAR Stability Test Model Equation 1 Sharia
Performance Using Inverse Roots of AR
Characteristic Polynomial
Based on figures 2, var stability testing using
inverse roots of AR characteristic polynomials for
all equation models show that the dots on the circle
or the data spread are not going out of the loop. The
test result means that the data is valid for further
analysis; using VAR. Therefore, var stability testing
using roots of the characteristic polynomial and
inverse roots AR characteristic polynomial is valid,
which means that the results of impulse response
function analysis and variance decomposition in
VAR estimates are valid.
4.4 Cointegration Test
Engle-Granger revealed a concept of cointegration
in 1987, a phenomenon of linear combinations of
two or more variables that are not stationers would
be stationers. This linear combination is known as
the cointegration equation and can be interpreted as
a long-term equilibrium relationship between
variables. This cointegration test was performed
before further testing and determining whether a
more appropriate VAR or VECM was used in this
study.
Table 5. Results of Uji Co-integration of Equation
Model Sharia Performance
Hypothesized
Eigenvalue
Trace
0.05
Prob.**
Statistics
Critical Value
None *
0.853375
128.7104
47.85613
0.0000
At most 1
0.551089
46.15560
29.79707
0.0003
At most 2
0.229241
11.71561
15.49471
0.1711
At most 3*
0.012003
0.519263
3.841466
0.4712
Source: Eviews data processed, 2022.
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Model Sharia Performance shows that the trace
statistic r = 0 is greater than the critical value with a
significance level of 5 per cent, which is 128,7104
greater than 47,85613. The test means that the null
hypothesis, which states that no cointegration exists
in the variables used, is rejected. The alternative
hypothesis, which states that there is cointegration,
is accepted. All variables have a stability/balance
relationship and the similarity of movement in the
long run. Therefore, all variables tend to adjust to
each other to reach their long-run equilibrium in any
short-run period. By then, the appropriate model for
this study is the Vector Error Correction Model
(VECM). The writer will not use the variance
Autoregression (VAR) model. The model will not
be used because the variables are cointegrated and
stationary at the first difference level.
4.5 Vector Error Correction Model test
results
The results of the conventional bank performance
model and the performance of Islamic banks,
stationary on the order of first difference, are stable
and cointegrated in the long and short term, using
the error correction vector model (VECM).
4.6 Long-term Vector Error Correction
Model in the performance of Syrian banks
The second model tested is the Islamic bank
performance model. The following are the results of
the Long-Term Estimation of the Islamic Bank
Performance Equation Model (Y, LBA, FNB, TPA),
which are presented in the table:
Table 6. VECM Estimation Results of Islamic
Banks' Long-Term Performance
Variable
Coefficient
t-statistics
Description
Y (-1)
1,000000
LBA(-1)
5,630294
[ 4,03890]**
Significant
FNB(-1)
-9,012219
[-2,14345] **
Significant
TPA(-1)
5,66167
[ 1,79297] **
Significant
C
-10,90499
Source: Eviews data processed, 2022.
[ ] : Shows t-count
* : Based on 99% confidence level (α=1%), t-table
(1,302).
** : Based on 95% confidence level (α=5%), t-table
(1.682).
*** : Based on 90% confidence level (α=10%) t-
table (2,018).
The estimation results on the research variables
obtained can be said to have a significant effect if
the t-count value is greater than the t-table value
with a significance level of 1% (1.302), 5% (1.682)
and 10% (2.018). The estimation results on the
research variables obtained can be said to have a
significant effect if the t-count value is greater than
the t-table value with a significance level of 1%
(1.302), 5% (1.682) and 10% (2.018). The
estimation results in the long term obtained the
variable (Y) Economic Growth with the Islamic
banking performance variable.
The Variable Profit variable (LBA) in Islamic
banking in the long-term estimation has a positive
and significant effect, with a coefficient value of
5.630294. An increase of 1 billion Rupiah in profit
on Islamic banking performance will increase 5.63
per cent of economic growth with the assumption
that the variable others are in a constant state in the
first quarter of 2010 to the fourth quarter of 2021 in
Indonesia.
The Variable Financing to Non-Bank Third
Parties (FNB) in Islamic banking in the long-term
estimation has a negative and significant effect, with
a coefficient value of -9.012219, a decrease of 1
billion Rupiah. Financing to Non-Bank Third
Parties will increase 9, 01 percentage of economic
growth, assuming other variables are constant, in
2010-2021 (Quarters I, II, III, & IV).
In the long-term estimation, the variable Total
Productive Assets (TPA) in Islamic banking has a
positive and significant effect, with a coefficient
value of 5.66167, an increase of 1 billion Rupiah.
Total Productive Assets on the performance of
Islamic banking will increase by 5.66 per cent
growth of the economy with the assumption that
other variables are constant in 2010-2021 (Quarters
I, II, III, & IV).
4.7 Long-term Vector Error Correction t-Test
Results
The t-statistical test was conducted to determine
whether or not there was an influence between each
independent variable on the dependent variable
partially; the following are the results of the t-test:
Table 7. Long-term VECM partial t test results
NO
Variable
t-calculate
t-table
Conclusion
1
LBA
4.038
1.682
Ho rejected
2
FNB
2.143
1.682
Ho rejected
3
TPA
1.792
1.682
Ho rejected
t-test results show that Profit variable (LBA),
Financing to Non-Bank Third Parties (FNB) and
Total Productive Assets (TPA) have a t-calculate
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greater than the t-table, then partially each variable
influences the dependent variable.
4.8 Short-term Vector Error Correction
Model in the performance of Syrian
banks
The results of the Short-Term Estimation of the
Islamic Bank Performance Equation Model (Y,
LBA, FNB, TPA) are presented in the table:
Table 8. VECM Estimation Results of Islamic
Banks' Short-Term Performance
Variable
Coefficient
t-statistics
Description
ECT
-0,682548
[-5,02494] **
Significant
D(Y)(-1))
0,279998
[ 2,03151] **
Significant
D(Y)(-2))
0,603951
[ 4,50821] **
Significant
D(LBA)(-1))
3,613104
[ 2,07501] **
Significant
D(LBA)(-2))
0,818797
[ 0,44801]
Not
Significant
D(FNB)(-1))
29,25307
[ 3,90089] **
Significant
D(FNB)(-2))
-4,476083
[ 3,90089] **
Significant
D(TPA)(-1))
30,97803
[4,21981] **
Significant
D(TPA)(-2))
4,174780
[ 0,54649]
Not
Significant
Source: Eviews data processed, 2022.
[ ] : Shows t-count
* : Based on 99% confidence level (α=1%), t-table
(1,302).
** : Based on 95% confidence level (α=5%), t-table
(1.682).
*** : Based on 90% confidence level (α=10%) t-
table (2,018).
The estimation results on the research variables
obtained can be said to have a significant effect if
the t-count value is greater than the t-table value
with a significance level of 1% (1.302), 5% (1.682)
and 10% (2.018). Based on the estimation results
above, the estimated error correction parameter
(ECT), with a significant level of 90 per cent, is
statistically significant with a coefficient of -
0.682548. The negative sign on the coefficient
indicates that the Error is corrected by 0.682548 per
cent every quarter in the equation to test the long-
term balance, so the VECM results can be used to
see the long-term effect. In the short term, only a
few variables significantly influence banking
performance.
The Variable Profit variable (LBA) in Islamic
banking in the short-term estimation has a positive
and significant effect, with a coefficient value of
3.613104. An increase of 1 billion Rupiah in profit
on Islamic banking performance will increase 3.61
per cent of economic growth with the assumption
that the variable others will be in a constant state in
the first leg of 2010 Quarter I to 2021 Quarter IV in
Indonesia.
The Variable Financing to Non-Bank Third
Parties (FNB) in Islamic banking in the short-term
estimation has a positive and significant effect, with
a coefficient value of 29.25307, an increase of 1
billion Rupiah. Financing to Non-Bank Third
Parties will increase 29.25 per cent of economic
growth, assuming other variables are constant, in the
first quarter of 2010 until the fourth quarter of 2021
in Indonesia in the first lag. The second lag,
Variable Financing to Non-Bank Third Parties
(FNB) in Islamic banking in the short-term
estimation, has a negative and significant effect,
with a coefficient value of -4.476083, a decrease of
1 billion Rupiah. Financing to Non-Bank Third
Parties will increase 4 .47 per cent of economic
growth, assuming other variables are constant.
In the short-term estimation, the variable Total
Productive Assets (TPA) in Islamic banking has a
positive and significant effect, with a coefficient
value of 30.97803, an increase of 1 billion Rupiah.
Total Productive Assets on the performance of
Islamic banking will increase by 30.9 per cent
growth of the economy with the assumption that
other variables are constant in the first quarter of
2010 until the fourth quarter of 2021 in Indonesia.
4.9 Short-term Vector Error Correction t-Test
Results
The t-statistical test was conducted to determine
whether or not there was an influence between each
independent variable on the dependent variable
partially; the following are the results of the t-test:
Table 9. Short-term VECM partial t test results
NO
Variable
t-calculate
t-table
Conclusion
1
D(LBA)(-1)
2.075
1.682
Ho rejected
2
D(LBA)(-2)
0.448
1.682
Ha accepted
3
D(FNB)(-1)
3.900
1.682
Ho rejected
4
D(FNB)(-2)
3.900
1.682
Ho rejected
5
D(TPA)(-1)
4.219
1.682
Ho rejected
6
D(TPA)(-2)
0.546
1.682
Ha accepted
T-test results show that Profit variable D(LBA)(-1),
Financing to Non-Bank Third Parties D(FNB)(-1),
D(FNB)(-2) and Total Productive Assets D(TPA)(-
1) has a t-calculate greater than t-table. The model
then partially each variable influences the dependent
variable. Variables D(LBA)(-2) and D(TPA)(-2)
have no effect because the t-count is smaller than
the t-table.
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4.10 Impulse Response Function (IRF)
Performance of Islamic Banks
Economic growth on the performance In terms of
economic growth on the performance of Islamic
banks shocks to the TPA, FNB and LBA. The
following are the results of the Impulse Response
Function analysis:
Fig. 3: Impulse Response Function (IRF)
In Sharia, the positive response of economic growth
to FNB and TPA shocks, Financing to non-bank
third parties and Total Earning Assets in the event
of a shock still affect economic growth positively.
The increase or decrease in growth remains stable in
1-4 periods. When a shock occurs, the negative
response to the LBA tends to affect the decline in
economic growth and create growth instability in 1-
4 periods.
4.11 Conventional and Sharia Variance
Decomposition
Variance decomposition is used to compile the
forecast error variance of a variable, namely how
big the difference between the variance before and
after shock, from other variables to see the relative
influence of research variables on other variables:
Table 10. Variance decomposition Performance of
Islamic Banks
Period
TPA_SYH
FNB_SYH
LBA_SYH
1
0.000000
0.000000
0.000000
2
0.104291
34.99205
0.029916
3
0.489337
39.59121
1.781927
4
1.998373
37.70177
8.161759
Source: Eviews data processed, 2022.
In terms of Sharia, performance is Financing to non-
bank third parties by 37%; these figures for four
periods contributed to economic growth. Shariah
performance variables managed to make a higher
contribution than conventional performance.
4.12 Discussion
Sharia performance in Indonesia, represented by
Profit (LBA) in the long and short term, has a
positive and significant relationship to economic
growth; sharia profit can improve the Indonesian
economy in 2010 Quarter I to 2021 Quarter IV in
Indonesia. On the other hand, the profit hits may
harm Indonesia's economic growth.
The statement is in line with previous research,
[19], which discusses the contribution of Islamic
banking to Indonesia's economic growth. The paper
examined the effect of consumption financing on
Indonesia's economic growth, which is clustered
according to use and business category consisting of
short-term and long-term Financing. The researchers
assert that consumer financing has a statistically
negative and significant effect on Indonesia's
economic growth in the short and long term.
Indonesian Islamic banking financing by use and
business category consisting of working capital
financing, investment financing and consumption
financing has contributed to Indonesia's economic
growth dynamics. The increase in consumer
financing in the short and long term will reduce
economic growth. In order to contribute to
Indonesia's economic growth, Islamic banking is
expected to optimize other types of Financing that
are more productive to contribute to Indonesia's
economic growth.
Financing to Non-Bank Third Parties (FNB) in
the long and short term has a positive and
significant relationship to economic growth.
Financing to Non-Bank Third Parties can improve
the Indonesian economy in the first quarter of 2010
to 2021, the fourth quarter in Indonesia. On the
other hand, when shocks hit Financing to Non-Bank
Third Parties, it still positively impacts the increase
or decrease in Indonesia's economic growth, which
remains stable. The result is in line with research,
[20], the development of Islamic finance (as
measured by loans issued by Islamic banks)
positively correlates with economic growth. The
correlation shows that the Islamic banking system
responds to the community's needs to contribute to
economic growth. Islamic credit has a positive
impact, [21], Islamic banks manage their spending
and credit risk based on sharia principles which
require them to evaluate the type, quality, and
amount of investment before confirmation. These
principles were the factors that helped the Islamic
Bank to survive during times of severe crisis.
Total Earning Assets (TPA) in the long and
short term have a positive and significant
relationship with economic growth; total Earning
Assets can increase the Indonesian economy from
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2010 Quarter I to 2021 Quarter IV in Indonesia. On
the other hand, when A shock hit total Earning
Assets, it still positively impacted the increase or
decrease in Indonesia's economic growth, which
remained stable.
The research is in line with the previous
research, [22], which stated that the productivity
performance of Islamic banking in the 2011-2018
period reached an efficient and productive condition
in implementing its operational activities.
Productivity growth (TFPCH) of +5.3 per cent
(1,053), a figure that illustrates the performance of
companies, especially in the Islamic banking
industry, being able to manage and utilize existing
inputs to achieve maximum output levels and
contribute to GDP. Productive assets have a positive
influence on economic development, [23]. The
existence of Islamic banking in the national banking
system in Indonesia can encourage the development
of the national economy. The contribution of
Islamic finance to the economy is made possible by
the sharia principles adopted in the operations of
Islamic banks, namely the prohibition of interest.
5 Conclusion
Profit (LBA) in Islamic banking in long-term
estimates has a positive and significant influence as
well as in short-term estimates that Profit (LBA) in
Islamic banking has a positive and significant
influence. In long-term estimates, Financing to Non-
Bank Third Parties (FNB) in Islamic banking has a
negative and significant influence. In the short term,
it has a positive and significant influence.
Furthermore, in long-term estimation, Total
Productive Assets (TPA) in Islamic banking has a
positive and significant influence. In the short term,
it also has a positive and significant influence.
The results of this study can be used as
recommendations to the related stakeholders.
Islamic banking can improve performance as
represented by Profit (Profit Improvement), which
will positively impact Indonesia's economic growth
in the short and long term.
Furthermore, the Government can make
regulations that limit banks in distributing consumer
credit and provide more productive loans through
working capital financing or investment financing
so that they can contribute more to improving the
country's economy. Research in Vietnam, [24],
showed that Government needs to take action using
appropriate intervention measures. The intervention
measures in Islamic banking are valuable in
increasing economic growth, [25]. So, Islamic
Banking is increasingly essential in the Indonesian
economy and finance [26]. On the other hand,
Islamic banking is quite reliable and able to survive
crises through the profit-sharing system (reducing
the risk of financial volatility), [27], [28]. Profit-
sharing systems also attracted more borrowers and
depositors, [29].
In addition, the financial health of banks can be
a concern for all parties, so lending to customers
must be carried out using the principle of prudence.
Keep the high non-performing loans of customers
from having a destructive impact on the health of
banks that lead to a decline in the economy of a
country.
Some previous research has tried to compare the
financial performance of conventional and Islamic
banking. However, previous studies have yet to
comprehensively analyse the performance of the
two types of banking (short-term and long-term).
This study will further discuss the future
development of conventional and Islamic banks.
The analysis will discuss how productive assets,
bank profits, and third-party funds are both types of
banking and how these three things contribute to
economic growth for the next five years. Research
analysis will compare the application of
conventional and Sharia concepts to economic
growth. Furthermore, it will be seen how the
contribution of the two existing types of banking to
economic growth, which one has a more significant
impact on economic growth.
Future research can take the perspective of the
soundness of Islamic banking and compare it with
the level of profitability on the economic growth of
a country. Other researchers can expand this
research by combining other methods (mixed
method), such as the use of primary and secondary
data simultaneously. In addition, future research can
also compare the performance of Islamic and
conventional banking to resilience in times of
economic crisis. Future research also needs to
consider the role of Foreign Direct Investment
which play an important part, [30], and compare the
effect. Finally, future research also needs to take
into account on diversity among employees, that can
play an important role in bank performance, [31].
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Arivina Ratih, Rahmah Dianti Putri,
Mahyudin Ahmad, Aryan Danil Mirza. Br
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
Heru Wahyudi conceived the study idea and made a
literature analysis. Next, Ukhti Ciptawaty collected
data, followed by Arivina Ratih writing up on this
research. Rahmah Dianti Putri was responsible for
the Statistics. Mahyudin Ahmad suggested the
policy recommendations. Aryan Danil Mirza. BR
provided technical support.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
The research in this manuscript is supported by
LPPM Universitas Lampung.
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DOI: 10.37394/232015.2023.19.12
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Arivina Ratih, Rahmah Dianti Putri,
Mahyudin Ahmad, Aryan Danil Mirza. Br
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Conflict of Interest
The authors have no conflicts of interest to declare
that are relevant to the content of this article.
Creative Commons Attribution License 4.0
(Attribution 4.0 International, CC BY 4.0)
This article is published under the terms of the
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