DETERMINANTS OF INCOME DIVERSIFICATION IN INDONESIAN ISLAMIC BANKS: AN ARDL APPROACH

Article Sidebar

PDF
Published: Jun 30, 2025
DOI: https://doi.org/10.19109/ieconomics.v11i1.28336

Main Article Content

Muhammad Deni Putra
UIN Mahmud Yunus, Batusangkar, West Sumatra, Indonesia
Muhammad Dedat Dingkoroci Akasumbawa
STAI NW Samawa, Sumbawa Besar, Nusa Tenggara Barat, Indonesia
Laelani Rukmana
STAI NW Samawa, Sumbawa Besar, Nusa Tenggara Barat, Indonesia

Abstract

The increasing competition and evolving regulatory landscape in the Islamic banking sector have prompted banks to diversify their income sources beyond traditional financing activities. This study investigates the determinants of income diversification in Indonesian Islamic banks by examining the influence of bank-specific and macroeconomic factors. The research is grounded in the need to enhance financial stability and sustainability in the dual banking system of Indonesia, where Islamic banks operate alongside conventional counterparts but face structural and operational limitations. The study employs the Autoregressive Distributed Lag (ARDL) approach using monthly panel data covering the period from January 2014 to February 2024.  The results indicate that in the short run, income diversification is significantly influenced by NPF and inflation, suggesting that risk and price instability reduce income diversification efforts. In the long run, ROA and exchange rate show a positive and significant relationship with income diversification, highlighting the importance of profitability and exchange rate stability. CAR and SIZE do not show significant influence in either the short or long run. This study contributes to the limited empirical research on income diversification in Islamic banks in emerging economies. It also offers policy insights by identifying factors that could support diversification strategies, which are crucial for improving competitiveness and resilience in the Islamic banking industry.

Downloads

Download data is not yet available.

Article Details

How to Cite
Deni Putra, M., Dedat Dingkoroci Akasumbawa, M. ., & Rukmana, L. (2025). DETERMINANTS OF INCOME DIVERSIFICATION IN INDONESIAN ISLAMIC BANKS: AN ARDL APPROACH. I-ECONOMICS: A Research Journal on Islamic Economics, 11(1), 25-37. https://doi.org/10.19109/ieconomics.v11i1.28336
Issue
Vol. 11 No. 1 (2025): I-ECONOMICS: A Research Journal on Islamic Economics
Section
Artikel
Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Creative Commons License
I-ECONOMICS: A Research Journal on Islamic Economics by http://jurnal.radenfatah.ac.id/index.php/ieconomics is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite

Deni Putra, M., Dedat Dingkoroci Akasumbawa, M. ., & Rukmana, L. (2025). DETERMINANTS OF INCOME DIVERSIFICATION IN INDONESIAN ISLAMIC BANKS: AN ARDL APPROACH. I-ECONOMICS: A Research Journal on Islamic Economics, 11(1), 25-37. https://doi.org/10.19109/ieconomics.v11i1.28336

References

Abasimel, N. A. (2023). Islamic Banking and Economics: Concepts and Instruments, Features, Advantages, Differences from Conventional Banks, and Contributions to Economic Growth. Journal of the Knowledge Economy, 14(2), 1923–1950. https://doi.org/10.1007/s13132-022-00940-z

Abbas, F., Ali, S., Moudud-Ul-Huq, S., & Naveed, M. (2021). Nexus between bank capital and risk-taking behaviour: Empirical evidence from US commercial banks. Cogent Business & Management, 8(1). https://doi.org/10.1080/23311975.2021.1947557

Adem, M. (2023). Impact of income diversification on bank stability: A cross-country analysis. Asian Journal of Accounting Research, 8(2), 133–144. https://doi.org/10.1108/AJAR-03-2022-0093

Aditya Kurnia Indrajaya, Stevan Goklas Simanjuntak, & Susy Muchtar. (2022). Bank Risk, Profitability, dan Investment Diversification: Studi Perusahaan Perbankan di Indonesia. Jurnal Ekonomi, 27(1), 64–79. https://doi.org/10.24912/je.v27i1.855

Agrawal, Dr. V., & Magar, Dr. A. (2023). Non-Performing Assets (NPA) in Indian Banking: Causes, consequences, and remedial measures. International Journal of Research in Management, 5(2), 62–65. https://doi.org/10.33545/26648792.2023.v5.i2a.95

Ashraf, Y., Nazir, M. S., Din, S. U., Yaqoob, M. S., & Shahzad, A. (2023). What determines income diversification of banking firms in Pakistan. International Journal of Business Excellence, 30(1), 1. https://doi.org/10.1504/IJBEX.2023.130776

Banda, L. G. (2021). Determinants of Commercial Banks’ Performance in Malawi: An Autoregressive Distributed Lag (ARDL) Approach. National Accounting Review, 3(4), 422–438. https://doi.org/10.3934/nar.2021022

Berger, A. N., Hasan, I., & Zhou, M. (2010). The effects of focus versus diversification on bank performance: Evidence from Chinese banks. Journal of Banking & Finance, 34(7), 1417–1435. https://doi.org/10.1016/j.jbankfin.2010.01.010

Bintoro, M. I., & Rahmadhani, F. (2021). The Influence of Capital Adequacy, Credit Risk, Liquidity, Operational Cost, Income Diversification, Firm Size and Ownership Structure on the Profitability of Bank: 4th International Conference on Sustainable Innovation 2020-Accounting and Management (ICoSIAMS 2020), Yogyakarta, Indonesia. https://doi.org/10.2991/aer.k.210121.018

Cuong, H. V., Ngoc Luu, H., Quynh Thi Nguyen, L., & Chu, V. T. (2020). Income structure, diversification strategy and owners’ benefit in cooperative financial institutions. International Journal of Managerial Finance, 16(4), 481–500. https://doi.org/10.1108/IJMF-11-2018-0346

Dávila, E., & Walther, A. (2020). Does size matter? Bailouts with large and small banks. Journal of Financial Economics, 136(1), 1–22. https://doi.org/10.1016/j.jfineco.2019.09.005

Dias, R. (2021). Capital regulation and bank risk‐taking – new global evidence. Accounting & Finance, 61(1), 847–884. https://doi.org/10.1111/acfi.12595

Gafrej, O., & Boujelbéne, M. (2022). The impact of performance, liquidity and credit risks on banking diversification in a context of financial stress. International Journal of Islamic and Middle Eastern Finance and Management, 15(1), 66–82. https://doi.org/10.1108/IMEFM-09-2020-0488

Githaiga, P. N. (2022). Income diversification and bank risk-taking: The moderating role of intellectual capital. Cogent Business & Management, 9(1), 2149142. https://doi.org/10.1080/23311975.2022.2149142

Henriques, C., & Neves, E. (2021). Exploring the trade-off between liquidity, risk and return under sectoral diversification across distinct economic settings. The Journal of Risk Finance, 22(2), 130–152. https://doi.org/10.1108/JRF-05-2020-0101

Jihadi, M., Vilantika, E., Hashemi, S. M., Arifin, Z., Bachtiar, Y., & Sholichah, F. (2021). The Effect of Liquidity, Leverage, and Profitability on Firm Value: Empirical Evidence from Indonesia. The Journal of Asian Finance, Economics and Business, 8(3), 423–431. https://doi.org/10.13106/JAFEB.2021.VOL8.NO3.0423

Khafagy, A. (2023). The Concrete Function of the Banking System: Samir Amin’s Monetary Theory of Financial Underdevelopment. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4317363

Khan, N., Ramzan, M., Kousar, T., & Shafiq, M. A. (2023). Impact of Bank Specific Factors on Credit Risk: Evidence from Islamic and Conventional Banks of Pakistan. Pakistan Journal of Humanities and Social Sciences, 11(1), 580–592. https://doi.org/10.52131/pjhss.2023.1101.0375

Lahouel, B. B., Taleb, L., Zaied, Y. B., & Managi, S. (2024). Financial stability, liquidity risk and income diversification: Evidence from European banks using the CAMELS–DEA approach. Annals of Operations Research, 334(1–3), 391–422. https://doi.org/10.1007/s10479-022-04805-1

Li, X., Feng, H., Zhao, S., & Carter, D. A. (2021). The effect of revenue diversification on bank profitability and risk during the COVID-19 pandemic. Finance Research Letters, 43, 101957. https://doi.org/10.1016/j.frl.2021.101957

Mala, C. M. F., Jumono, S., Lastro, W., & Iskandar, Y. (2023). INCOME DIVERSIFICATION, PROFITABILITY, AND RISK IN ISLAMIC BANKING IN INDONESIA. International Journal of Business, Law, and Education, 4(2), 942–951. https://doi.org/10.56442/ijble.v4i2.266

Najam, H., Abbas, J., Álvarez-Otero, S., Dogan, E., & Sial, M. S. (2022). Towards green recovery: Can banks achieve financial sustainability through income diversification in ASEAN countries? Economic Analysis and Policy, 76, 522–533. https://doi.org/10.1016/j.eap.2022.09.004

Napitupulu, B. E., Rajagukguk, J. S. S., & Siswono, S. (2024). The Managerial Economics Implications Of Rupiah Exchange Rate Fluctuations On Investment And Corporate Growth. International Journal of Informatics, Economics, Management and Science, 3(2), 174. https://doi.org/10.52362/ijiems.v3i2.1528

Paltrinieri, A., Dreassi, A., Rossi, S., & Khan, A. (2021). Risk-adjusted profitability and stability of Islamic and conventional banks: Does revenue diversification matter? Global Finance Journal, 50, 100517. https://doi.org/10.1016/j.gfj.2020.100517

Pham, D. K., Ngo, V. M., Nguyen, H. H., & Le, T. L. V. (2021). Financial crisis and diversification strategies: The impact on bank risk and performance. Economics and Business Letters, 10(3), 249–261. https://doi.org/10.17811/ebl.10.3.2021.249-261

Rahmania, T., Wulandari, S. S., & Marfu, A. (2024). Sustainable financial institution in Indonesia: An empirical analysis of social-cultural context, nepotism, and moral hazard on the shaping of non-performing loans. Sustainable Futures, 8, 100279. https://doi.org/10.1016/j.sftr.2024.100279

Razali, R., Haryono, S., Abdou, O. S., Jailani, M. R., & Imamuddin, I. (2024). Revisiting the Nexus among Bank Specific Factors, Macroeconomic Factors, and Islamic Banking Performance: Three Measurement Models. Shirkah: Journal of Economics and Business, 10(1), 78–96. https://doi.org/10.22515/shirkah.v10i1.748

Sururi, S., & Haryono, S. (2024). Does Diversification Affect Financing Risk in Indonesian Islamic Banks? An ARDL Approach. Share: Jurnal Ekonomi Dan Keuangan Islam, 13(2), 880–905. https://doi.org/10.22373/share.v13i2.24380

Sururi, S., Kuntoro, A., Akasumbawa, M. D. D., & Putra, M. D. (2025). Determinant of Net Profit Margin in Islamic Bank: Evidence From Indonesia. El-Kahfi: Journal Of Islamics Economics, 6(1), 171–182. https://doi.org/10.58958/elkahfi.v6i01.483

Tarawneh, A., Abdul-Rahman, A., Mohd Amin, S. I., & Ghazali, M. F. (2024). A Systematic Review of Fintech and Banking Profitability. International Journal of Financial Studies, 12(1), 3. https://doi.org/10.3390/ijfs12010003

Tok, E., & Yesuf, A. J. (2022). Embedding Value-Based Principles in the Culture of Islamic Banks to Enhance Their Sustainability, Resilience, and Social Impact. Sustainability, 14(2), 916. https://doi.org/10.3390/su14020916

Wang, C., & Lin, Y. (2021). Income diversification and bank risk in Asia Pacific. The North American Journal of Economics and Finance, 57, 101448. https://doi.org/10.1016/j.najef.2021.101448