Dissecting Islamic Bank Performance in Indonesia
The number of Islamic Banks rose from only 3 banks in 2007 to 11 banks in 2010. During the period of 2006 to 2013 the average rate of credit growth ranged from 37 percent and third party funds (DPK) grew 36 percent per year. In this period the return on assets (ROA) moves around 1.5 percent per year.
The rapid growth of credit and third party funds cannot be separated from the increasing public awareness of banks in accordance with Islamic principles. Most of this growth comes from customers of Conventional Commercial Banks who move to Sharia Commercial Banks (BUS). The developments in credit and deposits of Islamic banks were accompanied by an increase in the number of bank offices. The number of offices in 2010 increased by about 3 times the number of offices in 2007, namely from 401 BUS offices to 1,215 BUS offices.
The golden age of the Sharia Commercial Bank (BUS) in Indonesia as described above has ended in 2013. BUS credit growth is very high during the period 2007 to 2013 does not seem to be accompanied by the principle of prudence in lending. Non-performing financing (NPF) began to crawl up to 3 percent in 2013, reaching a peak of 4.95 percent in 2014, and after that slightly decreased to 4.42 percent by the end of 2017. This figure is far above the conventional bank NPL which values around 3 percent at the end of 2017.
Problems with problematic financing in Islamic banking can be caused by several factors. First, the abundance of deposits causes Islamic banks to have excess liquidity, thus encouraging Islamic banks to ease caution in financing disbursement. In other words, Islamic banks have become less selective in choosing financing customers. Sharia Bank Financing to deposit ratio (FDR) was above 100 percent in 2014. This indicates that Islamic banks are too expansive (over expansive) in financing. The main contributors to problematic financing in 2017 were profit sharing financing, especially Musyarakah with NPF of 5.79 percent.
Secondly, profit-based Islamic finance, such as mudharabah and musyarakah, cannot be separated from the conditions of the real sector. At a time when Indonesia's economic growth was weakening at around 5 percent, in general the industrial world was sluggish. In 2015 - 2017, this is particularly abundant in the mining, commodity and various related industries, such as heavy equipment.
Finally, the availability of competent resources. It is common knowledge that Islamic banks meet HR needs in two ways, namely "hijacking" HR from conventional banks and "forcing" new recruits to become credit account officers. Differences in the principle of financing in Conventional Banks which emphasize the relationship of debtors and creditors and the imposition of a fixed interest expense are very different from the concepts in Islamic banks which emphasize partnerships and share the benefits and risks of financing. This partnership concept requires the Syariah Bank credit staff to fully understand the customer's business processes so as to provide alternative solutions to the financing problems faced by customers. This competency is certainly not easy to have, especially by new employees.
The various problems faced by Islamic Banking in Indonesia also have an impact on HR needs. If from 2005 to 2015 the growth of HR in Syariah Banks was around 20 percent per year, since 2016 there was almost no addition of HR. Noting the current economic conditions that have not fully improved, the growth of financing ranges from 10-15 percent and the level of problematic financing which is currently still high, it is estimated that during 2018 there will not be much recruitment of new employees in Islamic Banking.
Author: Dr. Lutfi (Banking Observer STIE Perbanas Surabaya)