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Competition, Diversification, And Stability In The Indonesian Banking System

Author

Listed:
  • Mudeer Ahmed Khattak

    (Iqra University Islamabad)

  • Baharom Abdul Hamid

    (Lorong Universiti)

  • Muhammad Umar Islam

    (Asia Pacific University of Technology and Innovation)

  • Mohsin Ali

    (Taylor’s University)

Abstract

We examine the impact of competition and portfolio diversification on banking stability for conventional and Islamic banks in Indonesia. We find that the Islamic banking sector is less stable, when compared to the conventional banking sector. Competition in the banking sector reduces stability, while diversification enhances it. We find that competition negatively impacts the Islamic banks, but diversification has no impact on these banks. An interesting finding is that competition and diversification complement each other in enhancing the stability of the Indonesian banking sector. These findings carry an important policy implication for the banking sector of Indonesia.

Suggested Citation

  • Mudeer Ahmed Khattak & Baharom Abdul Hamid & Muhammad Umar Islam & Mohsin Ali, 2021. "Competition, Diversification, And Stability In The Indonesian Banking System," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(Special I), pages 59-88, January.
    • Handle: RePEc:idn:journl:v:24:y:2021:i:spf:p:59-88
    DOI: https://doi.org/10.21098/bemp.v24i0.1481
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    Cited by:

    1. Faaza Fakhrunnas & Rindang Nuri Isnaini Nugrohowati & Razali Haron & Mohammad Bekti Hendrie Anto, 2022. "The Determinants of Non-Performing Loans in the Indonesian Banking Industry: An Asymmetric Approach Before and During the Pandemic Crisis," SAGE Open, , vol. 12(2), pages 21582440221, June.

    More about this item

    Keywords

    Bank competition; Diversification; Stability; Dual Banking; Indonesia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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