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International Journal of Economics and Management, Volume 11, Issue 2, 2017, pp. 419-435

Does religiosity matter for Islamic banks' performance? Evidence from Indonesia

Abstract :

Islamic banks have grown rapidly across the world for the last two decades. Individuals' religiosity is considered as one of the important determinants of Islamic banks' rapid expansion, even though at some point religiosity could have a detrimental effect on the economy. This paper addresses the impact of regions' religiosity on Islamic banks' profitability and stability. Using a data of 146 Islamic rural banks in Indonesia from 2012q1 to 2015q4, we find that religiosity matters for Islamic banks' performance. We also find in this paper that Islamic banks located in the regions with higher religiosity level have better profitability and stability than those located in the less religious provinces. Additionally, this effect is more pronounced for small Islamic banks and those located outside Java island. This paper also discusses an important policy implication based on the results.

Keywords : Indonesia,Islamic banks,Performance,Profitability,Religiosity,Stability
Subject Area : Business and International Management Economics, Econometrics and Finance(all) Strategy and Management

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