Determinant of Saving in Islamic Bank: Case Study in Indonesia
Taufik Nugroho
1
, M Faishol Luthfi
1
and Sri Herianingrum
2
1
Master Study of Islamic Economics Program, Surabaya, Indonesia
2
Postgraduate Magister Islamic Economics Program, Surabaya, Indonesia
Keywords: Islamic Bank, Saving, VECM
Abstract: The development of the amount of saving in Sharia Banking in Indonesia during the 2011-
2017 periods experienced a relatively significant growth. However, in 2014-2015, the growth
of the amount of saving has decreased from the previous period. This decline is expected due to the impact
of the global financial crisis and high inflation. This research tries to analyse and compare the factors
influencing the growth of saving in Sharia Banking by using the VECM Method. The results of this study
indicate that in the short term there are two variables that affect the sharia savings significantly; that is the
variable of the amount of money in circulation (M2) and the variable of the currency exchange rate of
Rupiah to the US dollar (exchange rate). While the BI rate and inflation variables have no effect on sharia
savings. And in the long run, all macroeconomic variables are total money supply (M2), Rupiah exchange
rate to US dollar (exchange rate), BI rate and inflation signifies sharia savings significantly. In comparison,
the sharia saving is most influenced by sharia savings itself with 82% contribution. Then followed
by the inflation variable, which contributed 9.5%, and then Bi rate with a contribution of 6.2%, Rupiah
exchange rate to US dollar contributed 1.6% and the last variable, the amount of money in circulation (M2)
with a contribution of 0.37%.
1 INTRODUCTION
One of the most common problems facing emerging
countries like Indonesia is the lack of capital for
investments used to support the economic
development. Sources of state financing
development can come from within the country and
abroad. One of the alternatives to obtain domestic
financing funds is to source from public savings,
government savings, tax revenues and private
investment. Therefore, the existence of sharia
financial institutions is indispensable in financing
economic development.
The growth of savings accounts in sharia
banking from 2011 and 2017 is relatively increasing
from year to year. However, in 2014-2015, the
growth of the level of saving decreased from
previous periods. Whereas in the previous five years
of 2009-2013 the growth of sharia bank assets
experienced an average growth of 43%; however, in
the period of 2014-2015 it experienced a decline
drastically. This retardation is not only seen from the
decline on assets itself but also financing provided
saving.
Source: Bank Indonesia
Figure 1.1 Amount of Saving in Sharia Banking
The decline was also seen in the liquidity and
profitability ratios. This is predicted because of the
impact of the global financial crisis and high
inflation. But the decline is not gradual. In 2016-
2017 the growth of sharia banking assets which is
shown by the amount of saving has increased
relatively highly.
Nugroho, T., Luthfi, M. and Herianingrum, S.
Determinant of Saving in Islamic Bank: Case Study in Indonesia.
DOI: 10.5220/0007538401050110
In Proceedings of the 2nd International Conference Postgraduate School (ICPS 2018), pages 105-110
ISBN: 978-989-758-348-3
Copyright
c
2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
105
The development of this IB-savings is influenced
by the inflation rate. In developing countries,
inflation may push down the savings rate because of
an expenditure boost for durable goods thereby
lowering the savings rate.
Encouraging people to replace their nominal
assets into real assets, interest rates also have a role
in the level of Islamic banking savings, because
interest rates are a factor that can affect the macro
economy. Although sharia banking does not use
interest rates, the interest rate is still a benchmark to
determine the ratio and profit sharing. In addition,
the money supply factor also has an important role
in increasing the number of Islamic banking savings,
because all economic and financial activities are
done using the money. Whereas the function of
money is no longer only used as a means of payment
it is also used as a tool to store wealth or for
precaution reasons. The Rupiah exchange rate
against the US dollar that becomes a global payment
instrument becomes an external factor that has an
effect on the amount of savings in sharia banking.
So that a crisis that occurs globally either directly or
indirectly will affect sharia financial institutions in
developing countries including Indonesia.
In response to savings growth experiencing
relatively fluctuating growth, it is necessary to
evaluate any factors that may affect the growth of
Third Party Funds. With this sharia banking can
make efforts in coping with the phenomenon of
growth retardation that will happen. For that reason,
this research aims to discover the factors that cause
the growth of third party funds based on macro-
economy.
Many studies have conducted research to
examine macro-economic impacts on savings. Most
researchers have focused on influence only, but
there are still few who examine the contribution to
macro-economic variables that contribute most to
savings growth, such as the research of Muhammad
(2011) and Friska. (2013). They found that "per
capita income, interest rates and inflation affect
short-term savings in Indonesia. Whereas in the long
run only the money supply has an effect on savings.
Then Haron, Sudin (2015) on Determinant of
Islamic and Conventional Deposits in the Malaysian
banking system and Loayza and Shankar (2000)
measured the relationship between savings in India
and factors of macro-economic variables.
Based on the explanation that has been put
forward, the formulation of the problem in this
research is (1) How the macro-economic variable is
influencing the amount of sharia bank savings (2)
How is the response of the amount of saving in
sharia banks due to macro-economic shock (3) How
big is the contribution of each variable to the saving
in sharia banking.
1.1 Macro-economic Internal
Indicators
1.1.1 Inflation
• Inflation Relationship Against Saving
A high and uncontrollable inflation may disrupt
banking efforts in mobilizing public funds due to
high inflation rates causing the real interest rate to
decline. Such facts will reduce the public's desire to
save money so that the growth of banking funds
sourced from the community will decline.
1.1.2 Amount of Money Supply
• Money Supply Relation (M2) Against Saving
The components that contribute to improved M2
are the increase of M1 and the quasi-cash increase.
Such increasing is credited by rising amounts of
credit or financing issued by sharia banking in both
Rupiah currency and foreign currency (Forex). Other
than that, the slowdown of the M2 growth that is
slow in money creation due to the nonoptimal
function of banking intermediation.
1.1.3 The Rupiah Exchange Rate Against
the US dollar (Exchange Rate)
• Relation of Rupiah Exchange Rate to Saving
The exchange rate is an external factor that also
has an influence on the amount of saving. The
weakening of the Rupiah against the US dollar will
reflect on the uncertain economic conditions,
thereby increasing the risk that will be responded to
by the business world. The exchange rate is expected
to have an influence on the development of sharia
banks saving.
1.1.4 Interest Rate
• Interest Rate Relationship to Savings
According to Pohan the development of unusual
interest rates can directly disrupt the development of
banking. Low interest rates will reduce the public
interest in saving so that the amount of banking
funds will decline. However, on the contrary if the
interest rates are high it will increase the desire of
people to save.
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2 METHODOLOGY
2.1 Data Analysis Method
The method of analysis used in this research is
Vector Auto-regression (VAR), which in case of
integration will be continued with the Vector Error
Correction Models (VECM) method. Model
selection is VAR/VECM in this study with minimal
consideration theoretical approach with the aim of
being able to capture the phenomenon economy well
(Widarjono, 2013).
The problems in this study will be analyzed
using Vector Auto-regression. If the data used is
stationary in the first difference then the VAR model
will be combined with error correction model
becoming Vector Error Correction Model (VECM).
Simply, VECM is used to analyze the existence of
long-term and short-term relationships between
independent variables and dependent variables in
time-series data and see the responses and
contributions of each variable.
This research uses five variables, so in Vector
Auto regression model (VAR) or Vector Error
Correction Model (VECM) there are five models of
equations that can be processed i.e. one model for
each variable studied. The following equation will
be obtained from the sharia bank saving equation:
2
……………
1
2
……………
2
2
……………
3
2
……………
4
2
2
……………
5
3 RESULT AND DISCUSSION
In the VECM estimation on the sharia savings
model, it is explained that in the short term there are
two variables that influence the sharia savings
significantly, namely the amount of money in
circulation (M2) and the Rupiah exchange rate
variable to the US dollar (exchange rate). While the
BI rate and inflation variables have no effect on
sharia savings. And in the long run, the macro-
economic variables are total money supply (M2),
Rupiah exchange rate to US dollar (exchange rate),
BI rate and inflation affect the sharia savings
significantly.
The amount of money in circulation is known to
have a negative and significant effect on the amount
of sharia savings in the short and long term. This is
in contrast to Panorama research (2016) which
explains that the money supply has a positive
influence on the amount of sharia savings. However,
the results of this study are consistent with research
conducted by Sukmana and Halim (2017) and Haron
and Azmi (2008) which explains that an increase in
the money supply will make the lending rate of
conventional banks decline, thus making the cost of
lending cheaper. This will make people borrow a lot
of money from banks to conduct economic activities
or consumption, thus making the amount of saving
decrease.
In addition, customers concerns over the impact
of the Greek crises that occurred in 2012 and
2015, which make people prefer to hold their money
in hand rather than save their money in the bank.
This is in accordance with one of the motive theories
of society's behavior in holding money is the motive
of vigilance, where to overcome the uncertainty and
uncontaminate matters, then we need to hold the
money. Assuming people will be more ready to face
things that cannot be expected before.
In the variable of the Rupiah exchange rate
to the US dollar it is known to have a positive and
significant influence on sharia savings either in short
or long term. This is in contrast to Muttaqien's
(2013) study which explains that sharia banking is
vulnerable to changes in the Rupiah exchange rate.
If the value of the rupiah weakens, Islamic banking
fund deposits will also decline. This is in line with
the theory where both individual customers and
corporate customers will tend to attract funds.
However, the results of this study are consistent with
the research by Rudiansyah (2014) which explains
that the exchange rate of rupiah against US dollar
affects positively savings due to in the sharia bank
there is a phenomenon of the terms emotional
Determinant of Saving in Islamic Bank: Case Study in Indonesia
107
-
.0125
-
.0100
-
.0075
-
.0050
-
.0025
.0000
.0025
.0050
10 20 30 40 50 60 70 80 90 100
LN_M2 LN_KURS
LN_BI INFLASI
Response of LN_TABUNGAN to Cholesky
One S.D. Innovations
customers (spiritual) and rational customers, where
the emotional customers are considered to have
loyalty to sharia banks higher than the profit-
oriented rational customers.
Then, on the variable of BI rate to sharia saving,
it has a significant and negative influence. This is
because the rise in the interest rates will increase the
deposit interest rates and conventional bank lending
so that people tend to choose conventional banks as
a place to store their funds. According to the
classical economic view, saving is a function of the
interest rate. A high interest rate will encourage
people to save and sacrifice consumption. But unlike
Islamic banks that use the profit-sharing system for
mudharabah deposit savings and deposit bonuses for
wadi'ah contracts people prefer conventional banks
compared to sharia banks because the profit in
conventional banks is greater.
According to Sudarsono, the rise in BI rate is
responded to by the massive rate increase in
conventional banks. However, the increase in the
interest rate does not directly affect the sharia bank.
Sharia banks use a system of sale and purchase (ba'i)
where the margin payment is based on the fixed rate
of contract provisions and does not change at any
time as the interest. In Islamic banks the interest rate
is still a benchmark for determining the margin rate
and sharia ratio. Meanwhile, an increase in interest
rates will lower the public interest in depositing
funds in sharia banks because the margin level is
lower than the interest rate deposits in conventional
banks. Islamic banks will be more profitable for
investors because the margin charged is lower.
Increased interest and outflow for financing will
result in sharia banks increasing financing deposit
ratio (FDR) and while the savers will run to
conventional banks whose profits are higher, bank
deposit funds are reduced and rising as well as
exiting will increase the risk of liquidity of sharia
banks. To overcome this situation, sharia banks need
to increase the rate of bonus fee/profit sharing for
demand deposits, savings, and time deposits.
And in the last variable inflation has a significant
and negative effect on sharia savings in the long
term. This means that the increase in inflation can
cause a decrease in sharia savings. The results of this
study are in harmony with the research of Sukmana
(2017), Siaw and Peter (2015) which explains that
when the economy is in high inflation conditions,
then the economic actors either house the company's
willingness will be forced to disburse their spending
to buy goods for production by borrowing money
from the bank, thereby reducing the amount of
savings in the banking.
3.1 Impulse Response Function
Impulse response analysis is performed to see the
response trace of the dependent variable to the
shocks on error terms in the VAR system for some
future periods. Based on the IRF results in the sharia
savings model below, it explains that third-party
funds in sharia banks as a whole responded
negatively when there was a shock on macro-
economic variables consisting of inflation, BI rate,
Rupiah to US dollar (exchange rate) and the amount
of money in circulation (M2).
Figure 3.1 Impulse Response Function Sharia Saving
Model
Based on Figure 3.1 above, first, when there is a
shake on the variable M2 (the amount of money in
circulation), the saving in sharia banks responds
negatively in the 1st period to the 11th period. The
response of saving began to stabilize in the 15th
period. Second, when a shock occurs at the Rupiah
exchange rate against the US dollar, saving responds
positively in the 1st period to the 3rd period, and
changed to negative in 7th period. The Rupiah
exchange rate variable against US dollar found a
stability point in the 25th period. Third, when there
is a shock on the variable inflation, the amount of
saving in sharia banks responds negatively and
reaches the point of stability in the 17th period. And
finally, in the event of shocks to the BI rate variable,
saving responds negatively and reaches the point of
unity in the 18th period.
3.2 IDFEVD
After performing an Impulse Response Function
(IRF) analysis, the next step will be analysis using
Forecast Error Variance Decomposition (FEVD).
According to Ascarya (2009), FEVD is used to
predict the contribution of each variable's shocks to
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changes in a particular variable. This analysis was
conducted to predict the shock contribution of each
macro-economic variable to sharia bank savings.
Figure 3.2 Forecast Error Variance Decomposition Sharia
Saving Model
It can be seen in Figure 3.2 above that the
behavior of sharia savings is most influenced by
sharia savings itself with 82% contribution. Then
followed by inflation variable which contributed
9.5%, Bi rate with the contribution of 6.2%, Rupiah
exchange rate to US dollar with the contribution of
1.6% and the last variable amount of money in
circulation (M2) with the contribution of 0.37%.
Table 3.1 The Contribution of Macro-economic Variables
Shocks to Sharia Bank Savings
Sharia Banking Saving 82%.
Inflation 9,5 %,
BI rate 6,2 %
Exchange Rate 1.6 %
M2 0.37%.
Based on Table 4.1 it can be concluded that
the variable that most contributes to sharia savings is
the sharia savings variable itself and the second is
the inflation variable, the third BI rate, the fourth
exchange rate and the last is Money supply (M2)
4 CONCLUSIONS
Based on the results of the research above, it can be
concluded that in the short term there are two
variables that affect the sharia savings
significantly which are the variable of the amount of
money in circulation (M2) and the variable of
the exchange rate of Rupiah to the US dollar
(exchange rate). While the BI rate and inflation
variables have no effect on sharia savings. And in
the long run, the macro-economic variables
are the total money supply (M2), Rupiah exchange
rate to US dollar (exchange rate), BI Rate and
inflation signifies sharia savings significantly.
Based on the IRF, it explains that first, when
there is a shock to the M2 variable (the money
supply in circulation), the sharia bank's third-party
funds respond negatively in the 1st period to 11th
period. The third party fund response starts to
stabilize during the 15th period. Rupiah exchange
rate against US dollar, third-party
funds responded positively on the 1st period to the
3rd period and turned to negative in the 7th period.
The rupiah exchange rate variables against the US
dollar experience a stability point in the period of
25. Third, when there is a shock on the inflation
variable, third-party funds of sharia banks respond
negatively and reach the point of stability in the
period 17. Finally, in the event of shocks to BI rate
variables, third-party funds respond negatively and
reach a point of parity in the period of 18.
FEVD explained that the behavior of sharia
saving is mainly influenced by the sharia saving
itself with 82% contribution. Then followed by
inflation variable, which contributed 9.5%, Bi rate
with contribution of 6.2%, Rupiah exchange rate to
US dollar with contribution of 1.6% and the last
variable amount of money in circulation (M2) with
contribution of 0.37%.
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