Rising Interest Rates Slow Down Sharia Bank Lending

The Financial Services Authority (OJK) notes that the performance of financial services intermediation is generally still positive. This is shown by bank credit in July 2018, which grew by 11.34% year-on-year (YoY). Meanwhile, Third Party Funds (DPK) in July 2018 grew by 6.89% (YoY), compared to 6.9% (YoY) the previous month.

However, the performance of Islamic commercial banks in July of this year experienced a slowdown due to increased global uncertainty, triggering a 100 bps interest rate hike and tight liquidity. Islamic commercial banks in Business Group (BUKU) I were the hardest hit, as shown in the graph below. Credit for BUKU I Islamic banks in July 2018 fell by 10.54% (YoY) compared to July 2017, which still recorded growth of 6.33% (YoY). Similarly, Third Party Funds (DPK) fell by 11.86% from a previous growth of 10.69%.

Overall, the banking capital adequacy ratio (CAR) in July of this year fell to 22.49% compared to 23.15% in July of the previous year. Similarly, the net interest margin (NIM) also shrank to 4.99% from 5.2%. However, the gross non-performing loan (NPL) ratio decreased to 2.73% from 3%.