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COVID-19 Pandemic’s Impact on Return on Asset and Financing of Islamic Commercial Banks: Evidence from Indonesia

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  • Gama Putra Danu Sohibien

    (Department of Statistics, Institut Teknologi Sepuluh Nopember, Surabaya 60111, Indonesia
    Department of Applied Statistics, Politeknik Statistika STIS, Jakarta 13330, Indonesia)

  • Lilis Laome

    (Department of Statistics, Institut Teknologi Sepuluh Nopember, Surabaya 60111, Indonesia
    Department of Statistics, Universitas Halu Oleo, Kendari 93132, Indonesia)

  • Achmad Choiruddin

    (Department of Statistics, Institut Teknologi Sepuluh Nopember, Surabaya 60111, Indonesia)

  • Heri Kuswanto

    (Department of Statistics, Institut Teknologi Sepuluh Nopember, Surabaya 60111, Indonesia)

Abstract

The aim of this study is to propose appropriate models to forecast Return on Asset (ROA) and financing of Indonesia Islamic Commercial Banks during COVID-19 pandemic. In particular, we study the models which involve reciprocal relation between ROA and financing and incorporate COVID-19 pandemic’s impact. It is crucial because the government would benefit from forecasting results to formulate the policy for the banks related to ROA and financing. We consider two models: Vector Autoregressive with exogenous variable (VARX) and spline regression, since both models are able to exploit the multivariate structure of ROA and financing and to include COVID-19 impact as predictor. The results show that the VARX outperforms spline regression in terms of RMSE. Using VARX, we deduce that ROA and financing have a positive reciprocal relationship, meaning that when ROA increases, financing would increase, and vice versa. In addition, the pandemic has significant impact on the decline of the ROA. We recommend that banks conduct an in-depth analysis to determine the appropriate form of restructuring for debtors so that it does not have a significant impact on the decrease in ROA.

Suggested Citation

  • Gama Putra Danu Sohibien & Lilis Laome & Achmad Choiruddin & Heri Kuswanto, 2022. "COVID-19 Pandemic’s Impact on Return on Asset and Financing of Islamic Commercial Banks: Evidence from Indonesia," Sustainability, MDPI, vol. 14(3), pages 1-13, January.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:3:p:1128-:d:728458
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    References listed on IDEAS

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    1. Adam Altăr & Matei Nicolae Kubinschi & Alina Zaharia, 2021. "Uncovering the Dynamic Relationship between Credit and Sustainable Economic Growth in Selected CEE Countries," Sustainability, MDPI, vol. 13(11), pages 1-19, June.
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    Cited by:

    1. Muhammad Nazmul Hoque & Muhammad Khalilur Rahman & Jamaliah Said & Farhana Begum & Mohammad Mainul Hossain, 2022. "What Factors Influence Customer Attitudes and Mindsets towards the Use of Services and Products of Islamic Banks in Bangladesh?," Sustainability, MDPI, vol. 14(8), pages 1-19, April.

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