COMPETITION, DIVERSIFICATION, AND STABILITY IN THE INDONESIAN BANKING SYSTEM

  • Mudeer Ahmed Khattak
  • Mohsin Ali Taylor's university
  • Baharom Abdul Hamid International Center for Education in Islamic Finance (INCEIF), Malaysia
  • Muhammad Umar Islam Asia Pacific University of Technology and Innovation, Malaysia.
Keywords: Bank competition;, Diversification; Stability;, Dual Banking; Indonesia.

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.

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Published
2021-03-08
How to Cite
Khattak, M., Ali, M., Hamid, B., & Islam, M. (2021). COMPETITION, DIVERSIFICATION, AND STABILITY IN THE INDONESIAN BANKING SYSTEM. Buletin Ekonomi Moneter Dan Perbankan, 24, 59-88. https://doi.org/10.21098/bemp.v24i0.1481