The Impact of Conversion on Market Share in Indonesian Islamic Banks
Authors: Mohammad Nur Rianto Al Arif, Dwi Nuraini Ihsan, Zulpawati, Dede Abdul Fatah
Abstract
The process of converting a conventional bank into a fully-fledged Islamic bank is
becoming a popular alternative solution, alongside spin-off, for smaller banks. Two
Indonesian banks, Bank of Aceh Sharia and Bank of NTB Sharia, completed this con-
version in 2016 and 2018, respectively. This study uses a mixed-methods approach
to examine the impact of this conversion on market share, using both quantitative
regression with a dummy variable and qualitative analysis through focus group discus-
sions with executive management and in-depth interviews with the Sharia supervisory
boards of the two converted banks. The study found that the conversion positively
impacted market share, with the default rate and level of capital also playing a role.
Prior to conversion, the Indonesian sharia banking industry had less than a 5% market
share, but after the conversion, it reached 6.7%. The two converted banks were able
to increase their market share to 7% and 2%, respectively. These results suggest that
converting into a full-fledged Islamic bank is a viable alternative solution for smaller
conventional banks, rather than opting for spin-offs or mergers. Source: https://www.businessperspectives.org/index.php/journals/banks-and-bank-systems/issue-432/the-impact-of-conversion-on-market-share-in-indonesian-islamic-banks DOI: http://doi.org/10.21511/bbs.18(2).2023.01
The process of converting a conventional bank into a fully-fledged Islamic bank is
becoming a popular alternative solution, alongside spin-off, for smaller banks. Two
Indonesian banks, Bank of Aceh Sharia and Bank of NTB Sharia, completed this con-
version in 2016 and 2018, respectively. This study uses a mixed-methods approach
to examine the impact of this conversion on market share, using both quantitative
regression with a dummy variable and qualitative analysis through focus group discus-
sions with executive management and in-depth interviews with the Sharia supervisory
boards of the two converted banks. The study found that the conversion positively
impacted market share, with the default rate and level of capital also playing a role.
Prior to conversion, the Indonesian sharia banking industry had less than a 5% market
share, but after the conversion, it reached 6.7%. The two converted banks were able
to increase their market share to 7% and 2%, respectively. These results suggest that
converting into a full-fledged Islamic bank is a viable alternative solution for smaller
conventional banks, rather than opting for spin-offs or mergers. Source: https://www.businessperspectives.org/index.php/journals/banks-and-bank-systems/issue-432/the-impact-of-conversion-on-market-share-in-indonesian-islamic-banks DOI: http://doi.org/10.21511/bbs.18(2).2023.01