Comparative Analysis of Financial Performance in Indonesian Islamic Banks: The Impact of Spin-Offs, Mergers, and Conversion

Sylva Alif Rusmita; Marhanum Che Mohd Salleh; Khairunnisa Abd Samad

doi:10.21580/economica.2022.13.2.11262

Authors

Sylva Alif Rusmita Islamic Economics Department, Faculty of Economics and Business, Universitas Airlangga, Indonesia
Marhanum Che Mohd Salleh International Islamic University Malaysia, Malaysia
Khairunnisa Abd Samad Universiti Teknologi MARA, Malaysia

DOI:

https://doi.org/10.21580/economica.2022.13.2.11262

Keywords:

Comparison, , Financial Ratio, Islamic Banking, Spin Off

Abstract

This study conducts a comparative analysis of Indonesian Islamic banks' performance before and after spin-off, merger, and conversion. Using a quantitative approach, the research applies paired t-tests and Wilcoxon tests to assess financial performance across six categories: liquidity, financing, efficiency, profitability, capital adequacy, and non-performing financing. Data from six Islamic banks over ten years were analyzed, comparing performance pre- and post-establishment. The findings reveal no significant differences in performance for banks that underwent pure spin-offs. However, banks formed through mergers demonstrated improvements in operational efficiency, return on assets (ROA), and capital adequacy (CAR), while conversions exhibited strong financing performance but faced capital risk and lower profitability. These results suggest that mergers offer a more efficient establishment method for enhancing bank performance, while conversions require careful capital management. The research highlights the importance of strategic decisions regarding the choice of establishment method for Islamic banks, with significant implications for bankers and policymakers aiming to optimize Islamic bank performance.

Downloads

Download data is not yet available.

References

Abbas, Q., Hunjra, A. I., Azam, R. I., Ijaz, M. S., & Zahid, M. (2014). Financial performance of banks in Pakistan after Merger and Acquisition. Journal of Global Entrepreneurship Research, 4(1), 13. https://doi.org/10.1186/s40497-014-0013-4

Abdul-Majid, M., Saal, D. S., & Battisti, G. (2011). The impact of Islamic banking on the cost efficiency and productivity change of Malaysian commercial banks. Applied Economics, 43(16), 2033–2054. https://doi.org/10.1080/00036840902984381

Agustin. (2018). Manajemen Keuangan (1st Editio). Ekonisia.

Ahmed, F., Manwani, A., & Ahmed, S. (2018). Merger & acquisition strategy for growth, improved performance and survival in the financial sector. Jurnal Perspektif Pembiayaan Dan Pembangunan Daerah, 5(4), 196–214. https://doi.org/10.22437/ppd.v5i4.5010

Al Arif, M., D. Nachrowi, N., Nasution, M., & Zakir Mahmud, T. (2017). The Islamic Banking Spin-Off: Lessons from Indonesian Islamic Banking Experiences. Journal of King Abdulaziz University-Islamic Economics, 30(2), 117–133. https://doi.org/10.4197/Islec.30-2.11

Al Arif, M. N. R. (2015). Impact of Spin-Off Policy on the Asset Growth on Indonesian Islamic Banking Industry. Journal of Islamic Economics Banking and Finance, 11(4), 41–52. https://doi.org/10.12816/0024787

Al Arif, M. N. R., Masruroh, A., Ihsan, D. N., & Rahmawati, Y. (2020). The Alternative Strategies for Accelerating Islamic Banking Growth: Mergers, Spin-Offs, Acquisitions and Conversions. Al-Ulum, 20(1), 24–37. https://doi.org/10.30603/au.v20i1.1171

Al Tamimi, H. A. H., Duqi, A., Kanas, A., & Zervopoulos, P. D. (2022). Directional distance function DEA estimators for evaluating efficiency gains from possible mergers and acquisitions. Journal of the Operational Research Society, 73(6), 1240–1257. https://doi.org/10.1080/01605682.2021.1907243

Ali, S. A., & Bansal, A. (2020). An impact of mergers and acquisitions (M&A) to achieve inexpensive advantage in the economy of Bahrain (a study on Islamic banks in the Kingdom of Bahrain). Journal of Critical Reviews, 7(03), 4–16. https://doi.org/10.31838/jcr.07.03.02

Altunbaş, Y., & Marqués, D. (2008). Mergers and acquisitions and bank performance in Europe: The role of strategic similarities. Journal of Economics and Business, 60(3), 204–222. https://doi.org/10.1016/j.jeconbus.2007.02.003

Babu, M. R. (2019). Research on Profitability and Liquidity Position of Banks With Reference to Pre and Post-Merger. International Journal of Recent Technology and Engineering (IJRTE), 8(1S4), 253–261.

Badreldin, A. M., & Kalhöfer, C. (2009). The Effect of Mergers and Acquisitions on Bank Performance in Egypt. SSRN Electronic Journal, 1(15), 1–15. https://doi.org/10.2139/ssrn.3749257

Barney, J., Wright, M., & Ketchen, D. J. (2001). The resource-based view of the firm: Ten years after 1991. Journal of Management, 27(6), 625–641. https://doi.org/10.1177/014920630102700601

Bindabel, W. (2020). M&A Open Innovation, and Its Obstacle: A Case Study on GCC Region. Journal of Open Innovation: Technology, Market, and Complexity, 6(4), 138. https://doi.org/10.3390/joitmc6040138

Budiman, M. A., Azzahrah, S., & Andriani, A. (2023). The Impact of COVID-19 Pandemic on Financial Performance of Islamic Banking in Indonesia (pp. 141–147). https://doi.org/10.2991/978-94-6463-026-8_16

Deng, P., & Yang, M. (2015). Cross-border mergers and acquisitions by emerging market firms: A comparative investigation. International Business Review, 24(1), 157–172. https://doi.org/10.1016/j.ibusrev.2014.07.005

Ghoniyah, N., & Hartono, S. (2020). How Islamic and conventional bank in Indonesia contributing sustainable development goals achievement. Cogent Economics & Finance, 8(1), 1856458. https://doi.org/10.1080/23322039.2020.1856458

Hadziq, M. F., Mardoni, Y., & Syafril, S. (2022). Reanalysis of Spin-Off Islamic Banks In Indonesia: Efficient or Not? Amwaluna: Jurnal Ekonomi Dan Keuangan Syariah, 6(2), 214–228. https://doi.org/10.29313/amwaluna.v6i2.8599

Hamid, A. (2015). The Impact of Spin-Off Policy To The Profitability On Indonesian Islamic Banking Industry. Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah, 7(1), 117–126. https://doi.org/10.15408/aiq.v7i1.1363

Kandil, T., & Chowdhury, D. (2014). Islamic Banks’ Mergers and Acquisitions – Impacts on Performance and Financial Crisis in the United Kingdom (pp. 119–140). Emerald Group Publishing Limited. https://doi.org/10.1108/S1569-3759(2014)0000095016

Karim, A. (2010). Bank Islam: Analisis Fiqh dan Keuangan (Edisi Keempat). Jakarta (ID): PT. Raja Grafindo Persada.

Lommerud, K. E., Olsen, T. E., & Straume, O. R. (2006). Cross border mergers and strategic trade policy with two-part taxation: is international policy coordination beneficial? Discussion Papers, Research Unit: Market Processes and Governance, 2–30. https://ideas.repec.org/p/zbw/wzbmpg/spii200624.html

Mahmood, I., Aamir, M., Hussain, C., & Sohail, N. (2012). Impact of merger/acquisition on share price-a case study of Pakistan. European Journal of Scientific Research, 67(4), 617--624.

Markom, R., & Ismail, N. (2009). The development of Islamic Banking Laws in Malaysia: an overview. Jurnal Undang-Undang Dan Masyarakat, 13, 191.

Maulida, S., & Aam Slamet Rusydiana. (2022). Measuring the Product Islamic Bank Spin-off in Indonesia: Pros and Cons. Fara’id and Wealth Management, 2(1). https://doi.org/10.58968/fwm.v2i1.180

Mohamad, S., Mahomed, Z., & Kamil, N. (2017). Islamic banking business of conventional banks: transition from windows to Islamic subsidiaries. In Islamic Finance in Malaysia: Growth & Development (p. (pp. 86-114)).

Mohammed, N., & Muhammad, J. (2018). Impact of Structural Changes on Bank Competition in Dual Banking Industry. Jurnal Pengurusan, 54(2018), 73–86. https://doi.org/10.17576/pengurusan-2018-54-08

Moin, A. (2003). Merger, Akuisisi dan Divestasi. Edisi Pertama. Yogyakarta, Indonesia: Ekonisia.

Muhammad, H., Waqas, M., & Migliori, S. (2019). A comparative study of banking sector performance before and after merger & acquisition: Evidence from Pakistan. Corporate Governance: Search for the Advanced Practices, 275–292. https://doi.org/10.22495/cpr19p15

Nasuha, A. (2016). Dampak Kebijakan Spin-off Terhadap Kinerja Bank Syariah. Al-Iqtishad: Journal of Islamic Economics, 4(2), 242–257. https://doi.org/10.15408/aiq.v4i2.2534

Natt, A., Al-Habshi, S. O., & Zainal, M.-P. (2009). A proposed framework for human capital development in the Islamic financial services industry. The Journal of Knowledge Economy & Knowledge Management, 1, 9–26.

Otoritas Jasa Keuangan. (2020). Statistik Perbankan Syariah Bulan September 2020.

Pernamasari, R. (2020). Analysis Performance of Islamic Bank in Indonesia: Before and After the Spin Off. European Journal of Business and Management Research, 5(4), 1–7. https://doi.org/10.24018/ejbmr.2020.5.4.452

Prasetyo, M. B., Luxianto, R., Baskoro, R. A., Adawiyah, W., & Putri, N. I. S. (2019). The Role of Capital on Islamic Bank Spin-Offs in Indonesia. The South East Asian Journal of Management, 13(2), 119–139. https://doi.org/10.21002/seam.v13i2.11179

Purna, S. P. (2018). The Determinants of Profitability on Full-Fledged Islamic Bank and Islamic Window Bank in Indonesia and Malaysia From 2011-2016 [Universitas Islam Indonesia]. https://dspace.uii.ac.id/handle/123456789/6559

Rahman, Z., Ali, A., & Jebran, K. (2018). The effects of mergers and acquisitions on stock price behavior in banking sector of Pakistan. The Journal of Finance and Data Science, 4(1), 44–54. https://doi.org/10.1016/j.jfds.2017.11.005

Rieck, O., & Doan, C. T. (2009). Shareholder Wealth Effects of Mergers and Acquisitions in the Telecommunications Industry. In Telecommunication markets (pp. 363–394). Springer. https://doi.org/10.1007/978-3-7908-2082-9_21

Rusmita, S., Putri, F., Suprayogi, N., & Vendy, V. (2019). Differences of Islamic Bank Performance based on Establishment Method: Evidence from Indonesia. Proceedings of the 20th Malaysia Indonesia International Conference on Economics, Management and Accounting, 823–837. https://doi.org/10.5220/0010598800002900

Rusydiana, A. S., Devi, A., Hasib, F., & Rani, L. (2019). Spin-Off Policy of Sharia Bank: Is It Profitable? Al-Iqtishad: Jurnal Ilmu Ekonomi Syariah, 11(2), 265–288. https://doi.org/10.15408/aiq.v11i2.9157

Sanfilippo Azofra, S., Garcia Olalla, M., & Torre Olmo, B. (2008). Size, Target Performance and European Bank Mergers and Acquisitions. American Journal of Business, 23(1), 53–64. https://doi.org/10.1108/19355181200800004

Santoso, S. (2003). Mengatasi Berbagai Masalah Statistik dengan SPSS versi 11.5. Gramedia Pustaka Utama.

Sarifudin, M., & Faturohman, T. (2017). Spin-Off Efficiency Analysis of Indonesian Islamic Banks. Journal of Business and Management, 6(2), 192–202. https://journal.sbm.itb.ac.id/index.php/jbm/article/view/2153

Sarker, M. N. I., Khatun, M. N., & Alam, G. M. (2019). Islamic banking and finance: potential approach for economic sustainability in China. Journal of Islamic Marketing, 11(6), 1725–1741. https://doi.org/10.1108/JIMA-04-2019-0076

Sinha, P., & Gupta, S. (2011). Mergers and Acquisitions: A pre-post analysis for the Indian financial services sector. MPRA Paper, 1–36.

Siswantoro, D. (2014). Analysis of Islamic Bank’s Performance and Strategy After Spin-off as Islamic Full-fledged Scheme in Indonesia. Procedia - Social and Behavioral Sciences, 164, 41–48. https://doi.org/10.1016/j.sbspro.2014.11.048

Sugiyono. (2013). Statistika Untuk Matematika. Alpabeta. www.cvalfabeta.com

Sujud, H., & Hachem, B. (2018). Effect of mergers and acquisitions on performance of Lebanese banks. International Research Journal of Finance and Economics, 10(8), 69–77.

Supriyono, S., Rodoni, A., Suparno, Y., Hermadi, H., & Others. (2019). Efficiency Performance Analysis of Panin Dubai Syariah Bank In Collecting And Distributing Third Party Funds Before And After Merger. I-Finance: A Research Journal on Islamic Finance, 5(1), 46–56. https://doi.org/10.19109/ifinance.v5i1.3716

Taga, A., Nawawi, K. L., & Kosim, A. M. (2019). Perkembangan perbankan syariah sebelum dan sesudah spin-off. Tafaqquh, 4(1), 78–110.

Thought, C. S., Burlea, A. S., & Mahon, J. F. (2013). Encyclopedia of Corporate Social Responsibility. In S. O. Idowu, N. Capaldi, L. Zu, & A. Das Gupta (Eds.), Encyclopedia of Corporate Social Responsibility. Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-642-28036-8

Trinugroho, I., Santoso, W., Irawanto, R., & Pamungkas, P. (2021). Is spin-off policy an effective way to improve performance of Islamic banks? Evidence from Indonesia. Research in International Business and Finance, 56, 101352. https://doi.org/10.1016/j.ribaf.2020.101352

Widiyanto, M. A. (2013). Statistika Terapan. PT. Elex Media Komputindo.

Yuspin, W., Absori, & Nurwanti, Y. D. (2020). Islamic banking structure post spin-off policy: Indonesian perspective. International Journal of Innovation, Creativity and Change, 12(2), 374–391.

Yuspin, W., & Wardiono, K. (2017). Islamic banking trajectories of Indonesia: Dealing with the present and shaping the future. International Journal of Economic Research, 14(16), 29–42.