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

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 im...

Full description

Saved in:
Bibliographic Details
Published in:Sustainability 2022-02, Vol.14 (3), p.1128
Main Authors: Sohibien, Gama Putra Danu, Laome, Lilis, Choiruddin, Achmad, Kuswanto, Heri
Format: Article
Language:English
Subjects:
Autoregressive models
Banks
Commercial banks
Coronaviruses
COVID-19
Interest rates
Islamic financing
Pandemics
Parameter estimation
Regression analysis
Sustainability
Time series
Variables
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary: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.
ISSN:2071-1050
2071-1050
DOI:10.3390/su14031128