THE DETERMINANT OF INDONESIA’S ISLAMIC RURAL BANKING RISK TAKING
Islamic banking has become the fastest growing financial institution in Indonesia. However, the infrastructure to support its fast progress is relative left behind. This study focuses on Islamic rural banking (IRB) in Indonesia. This specific financial institution is mainly operating in the rural or suburb area and 100% of its revenue comes from financing activities. For this type of financial institution, understanding about credit risk is key to its survival. This study investigates the determinant of IRB’s risk taking. Using series of data and applying ARIMAX model, internal industry data and macroeconomic variables are applied to identify the determinant of bank risk taking. The results indicate that risk taking is determined positively by NPF, BI-rate and negatively by ROA. Leverage, Asset Management, CAR. For Arima, AR (1) and MA (1) are both significant. The future of Islamic rural banks will depend to a large extent on how well they manage its risk taking behaviour.
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