Future bank profitability may be affected by the low-interest-rate environment

Objective – Islamic Banks have a distinct advantage that is not only conduct a commercial operation, but to also conduct social operations. Therefore, Islamic Banks plays an important role in developing the Indonesian economy. The aim of this study is to investigate the impact of internal and external factors that affect the profitability of Islamic Banks in Indonesia. Methodology/Technique – The methodology of this research is multiple regression. The object of this research is the Islamic banking industry in Indonesia. Internal factors include size, liquidity, asset quality, management, and efficiency ratio. External factors include interest rate and inflation. Return on Assets is used to measure profitability. The monthly data is collected from the financial reports of Islamic Banks between 2011 to 2016. Findings – The findings show that size, liquidity, assets quality, management ratio, interest rate and inflation lead to a greater Return on Assets (profitability) in Islamic Banks in Indonesia. Efficiency however does not have a significant effect on profitability of Islamic Banks in Indonesia. Novelty – Based on the results of this research, it can be concluded that the Islamic banking industry can use those variables to improve the profitability of Islamic banks in the future. In addition, there are two variables that affect the profitability of Islamic banking industry. For the Islamic banking industry should anticipate the movement of inflation and interest to improve the profitability of Islamic banks. Type of Paper: Empirical paper. Keywords: Islamic Banks; Profitability; Internal Factors; External Factors; Indonesia. Reference to this paper should be made as follows: Sukmaningrum, P.S; Pirzada, K; Rusmita, S.A; Hasib, F.F; Widiastuti, T; Hendratmi, A. 2020. Determinants of Islamic Bank Profitability: Evidence from Indonesia, J. Fin. Bank. Review, 5 (1): pp. 01 – 13 https://doi.org/10.35609/jfbr.2020.5.1(1) JEL Classification: G21, G24.

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Asset-Liability Management of Life Insurers in the Negative Interest Rate Environment

SSRN Electronic Journal ◽

10.2139/ssrn.3840643 ◽

2021 ◽

Author(s):

Yijia Lin ◽

Sheen Liu ◽

Ken Seng Tan ◽

Xun Zhang

Keyword(s):

Interest Rate ◽

Asset Liability Management ◽

Life Insurers ◽

Liability Management ◽

Rate Environment

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How Do Homeowners Choose Between Fixed and Adjustable Rate Mortgages?

Quarterly Journal of Finance ◽

10.1142/s2010139216500130 ◽

2016 ◽

Vol 06 (04) ◽

pp. 1650013 ◽

Cited By ~ 6

Author(s):

Yevgeny Mugerman ◽

Moran Ofir ◽

Zvi Wiener

Keyword(s):

Interest Rate ◽

Housing Prices ◽

Optimal Choice ◽

Housing Finance ◽

Short Term ◽

Fixed Rate ◽

High Interest Rate ◽

Theoretical Literature ◽

Rate Environment ◽

Adjustable Rate

Housing is the most important asset in the portfolio of most households. Understanding the households’ decision on housing finance has important implications from a policy perspective, due to the effects it may have on the housing prices, on the housing market stability and on household welfare. The theoretical literature on housing finance focused on figuring out the optimal choice between fixed rate mortgages (FRMs) and adjustable rate mortgages (ARMs). We argue that the standard economic criteria are sometimes inadequate to explain household’s choices, which may be motivated by psychological factors. In other words, we claim that household’s choice depends only partially on the findings of the theoretical literature. We examine the effect of changes in the short-term market interest rate on the households’ choice between FRMs and ARMs. We test this effect using a unique data provided to us by the Bank of Israel, which contains detailed information on the household’s decision between FRM and ARM contracts in Israel in the past decade. The results of our analysis demonstrate a significant association between FRM preference and short-term interest rate reduction. Moreover, we find that the change in the short-term interest rate is more salient to the borrowers in periods of a high interest rate environment. We attribute these findings to Tversky and Kahneman (1974) availability and representativeness heuristics.

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A Risk Weighted Approach Designed to Manage Bond Exposures in a Low Interest Rate Environment

SSRN Electronic Journal ◽

10.2139/ssrn.2305895 ◽

2013 ◽

Author(s):

Patrick B. Beaudan

Keyword(s):

Interest Rate ◽

Rate Environment

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PENGARUH VARIABEL MAKROEKONOMI TERHADAP PROFITABILITAS BANK KONVENSIONAL BUKU 4 DI INDONESIA

Jurnal Kajian Ekonomi dan Pembangunan ◽

10.24036/jkep.v3i1.11541 ◽

2021 ◽

Vol 3 (1) ◽

pp. 65

Author(s):

Sandi Fitra Yusuf ◽

Mike Triani

Keyword(s):

Economic Growth ◽

Interest Rate ◽

Random Effect ◽

Random Effect Model ◽

Bank Profitability ◽

Macroeconomic Variables ◽

Section Data ◽

Insignificant Effect ◽

Effect Model ◽

Selection Test

This study explains the extent of the influence of macroeconomic variables on the profitability of BUKU 4 banks in Indonesia. The macroeconomic variables consist of economic growth (X1), inflation (X2), Bank Indonesia Interest Rate (BI Rate) (X3, and Profitability is measured by the ROA (Return) ratio. On Asset). This study combines cross section data of 7 banks with time series from 2010-2019, with the Panel Regression method with the Random Effect model selection test. The results show that: (1) Economic growth has a positive and significant effect on bank profitability. conventional BUKU 4 in Indonesia, (2) Inflation has a positive and insignificant effect on the profitability of conventional BUKU 4 banks in Indonesia, (3) the Bank Indonesia Interest Rate (BI Rate) has a positive and insignificant effect on the profitability of conventional BUKU 4 banks in Indonesia.

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