FINANCIAL PERFORMANCE AND SHARIA RISK OF GOVERNMENT-OWNED ISLAMIC RURAL BANKS DURING COVID-19 IN INDONESIA

• Main Author: Zahrotun Nisa, Riza
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/57567
• Institution: Institut Teknologi Bandung

This study examines the effect of government ownership on financial performance and sharia risk of Islamic rural banks using all publicly available data of 157 BPRSs from 23 provinces in Indonesia. This research uses a quantitative method with secondary data obtained from the Financial Services Authority (OJK). Regressions using panel data regressions are employed to analyze the relationship of government ownership on financial performance and sharia risk. The periods used are between 2019Q4 and 2020Q3, representing the timeline before and during COVID-19. Return on equity (ROE) and Non-halal income (NHI) is employed to measure the financial performance and sharia risk, respectively. According to Model I and III, the results found an insignificant effect of government ownership on ROE. In contrast, there is a significant positive effect of government ownership variables on non-halal income in Model II and IV. However, the degree decreases during the COVID-19 pandemic. It reveals that government-owned Islamic rural banks are found to have lower non-halal income during the pandemic. We also find that bigger firms with higher leverage tend to have higher non-halal income. This study is expected to contribute to the still thin literature on sharia risk, especially in the context of Islamic rural banks in Indonesia and the financial performance of Islamic rural banks. Results will have implications to the regulator to assure the sharia compliance of the Islamic finance industry. This is essential to gain trust from the Islamic society, which concerns about the compliance of Islamic banks.