Abstract: This research aims effect of Non-performing Financing and mudaraba financing through profitability with macroeconomics using multiple regression analysis (T test, F test and coefficient of determination R² test) and moderation factor using the moderated regression analysis test. This result indicated variable non-performing financing (NPF) have a negative effect on profitability while mudaraba financing have a positive effect on profitability. The regression coefficient value in this study is 0.483 and it can be concluded that the variable non-performing financing (NPF) and mudaraba financing on profitability is 48.3% and the contribution of 51.7% can be explained by other variables that are not in this study. inflation can moderate non-performing financing (NPF) and mudaraba financing through profitability.

Introduction to The Problem: COVID-19 has an impact on business sectors, no exception to the banking sector. Many policies are made by the Government, such as in providing relaxation of financing. This research will look at Non-Performing Financing (NPF), and Mudaraba financing, through Profitability, with macroeconomics as a moderating factor.

Purpose: This research is intended to examine the impact of COVID-19 on Non-Performing Financing and Mudaraba Financing on profitability by using macroeconomics as a moderating factor. So that it can be input for stakeholders related to regulatory design and future decision making.

Methodology: This research using quantitative research with Multiple Linear Regression Analysis and Moderated Regression Analysis. The sample using in this research is 10 Islamic Commercial Banks, the research starts from January 2020 to September 2020.

Findings: non-performing financing (NPF) and mudaraba financing has a simultaneous effect on the profitability of Islamic Commercial Banks during the 2019-2020. The inflation variable can moderate the effect of non-performing financing and mudaraba financing on the profitability variable during pandemic.

Paper Type: Research Article

Keywords: Non-Performing Financing (NPF); Mudaraba Financing; Profitability.

 

Introduction

In 2020 the world was shocked by the emergence of a new virus, namely the corona virus disease (COVID-19). COVID-19 has begun to spread to various regions of the world. The virus has spread to more than 100 countries, and more than millions of people worldwide have tested positive for the case. The number of new cases reported in Wuhan has decreased, but it is different from other regions and countries that have experienced spikes such as South Korea, Italy and Iran (Sumadi, 2020)as well as Indonesia. COVID-19 is an infectious disease caused by the acute respiratory syndrome coronavirus 2 (SARS-Cov-2). This outbreak first occurred in December 2019 in Wuhan, the capital of China's Hubei province and since then it has begun to spread worldwide, this viral pandemic has continued until now. (M. ja’far & Itsnaini, 2020).

Indonesia is one of the countries affected by the COVID-19 pandemic, the number of confirmed cases to date is 1.5 million, 1.34 million recovered and 40,581 died. According to a report from the World Health Organization (WHO) this spreading will continue and increasing every day. With various efforts to deal with the virus, the Indonesian government has taken action, especially for areas affected by the pandemic, which must take large-scale social restrictions  and also a vaccination program (Ubaidillah & Syah Aji, 2020).

The impact of COVID-19 is not only on health sector, but also affect to the all-sectors education, social, politic, economic, etc. Sharia banking in Indonesia is one of those affected. For almost two periods, Islamic banking was able to withstand the shocks of the domestic and global crises. COVID-19, there are different waves of crises, there are three major crises, the health crisis, the economic crisis and the social crisis (Wahyudi, 2020).

Banking is an institution that has a major role in the development of a country. This role is manifested in the bank's function as a financial intermediary institution that collects funds from the public in the form of deposits and distributes in the form of credit. In law No. 10 of 1998 based on its operational principles, banks are divided into 2, namely conventional banks which are based on interest principles and Islamic banks based on sharia principles (Umam & Utomo, 2016).

Sharia banks during the COVID-19 pandemic still have to carry out their function as an intermediary for people who are short of funds and people who are excess funds. On the other hand, Islamic Banks are also facing several possible risks such as the risk of non-performing financing, distribution of financing and other risks that will have an impact on the performance and profitability of Islamic Banks. In addition, it also has an impact on macroeconomic factors such as inflation (Wahyudi, 2020).On the other hand, the government policy pushing the banking industry to provide relaxation to affected customers.

Table 1: Distribution of Banks on the Island of Java

Level Bank

 

Province

Branch Office

Sub-Branch Office

Kantor Kas

West Java

63

214

27

Banten

20

58

8

DKI Jakarta

65

141

34

DI. Yogyakarta

9

25

10

Central Java

37

88

16

East Java

44

142

22

Total

238

668

117

Demographically, Islamic Commercial Banks have a network of offices spread throughout Indonesia as many as 2,034, starting from branch offices, sub-branch offices, and cash offices which are dominated by the island of Java, which is the region most exposed to COVID-19 with the distribution as listed in table 2. Banking those in the red zone must reduce services during their working hours, this has an impact on optimization and effectiveness in banking performance resulting in an increase in potential losses. (Ningsih & Mahfudz, 2020).

 

 

 

 

 

 

 

 

 

 

Fig. 1: Return on Asset, Non-PerformingFinancing, and Potential Financing Losses

Source: Indonesia Banking Statistic 2020

 

 

Based on the statistical data of Islamic banking until December 2020, it shows that the overall growth of ROA (%) and NPF (%) in the Islamic banking industry is still at the normal threshold even though ROA has decreased but this is also supported by a decrease in NPF, although the ability of banks to produce the profit with the assets owned decreases as well as the problematic financing. The next spotlight is on an increase in the potential for financing losses based on mudaraba and musyarakah investments.

Table 2: Profit Statistics, NPF, Net Operation Margin, Potential losses (in billion) 2020

Source: Indonesia Banking Statistic 2020

Month

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Profit

6,495

6,463

6,478

5,404

5,029

4,886

4,821

4,780

4,821

4,827

4,846

5,087

 Non Performing Financing

7,720

7,585

7,828

7,766

7,704

7,768

7,780

7,765

7,879

7,719

7,903

7,713

Operating income

6,697

6,532

6,303

5,412

4,885

4,779

4,748

4,781

4,798

4,818

4,856

5,137

Potential losses for Mudaraba and Musharaka

2,350

2,369

2,423

2,378

2,514

2,610

2,677

2,807

3,036

3,100

3,210

3,336

Throughout 2020 the potential for losses has increased significantly. In January 2020 the loss based on mudaraba and musyarakah investment was 2,350 billion and at the end of the year it increased to 3,336 billion, an increase of 41.96%. This makes Islamic banking must be careful in channeling its financing. Not only in terms of potential losses, in terms of income, operating income also decreased in the middle of the month from May to November.

The importance of total asset value and profitability for each bank means that the bank must be able to increase its assets and profitability so that its business activities can survive. Banks with relatively large ownership of total assets will have better performance, so that the ability to achieve profits or profits is higher (Husaeni, 2017).

One of the tools to measure the profitability of a bank is return on assets (ROA). The ratio is used to measure the effectiveness of the company in generating profits by utilizing its assets. Return on assets (ROA) is the ratio obtained between profit before tax to total assets (Parenrengi & Hendratni, 2018).  The greater the return on assets (ROA) owned by a bank, the greater the level of profit that the bank will get and the better the position of the bank in the use of assets.The results of the study from (Hutagalung, 2019)show that NPF has a positive and significant effect on ROA and inflation cannot moderate the effect of NPF on ROA. Even further (Nawawi, Nurdiansyah, & Al Qodliyah, 2018)show that mudaraba financing has a positive effect on ROA and (Cahyaningrum, 2016)show that mudaraba financing, Third Party Fund (DPK) and NPF have a simultaneous effect through ROA and the results of the study from(Ali, 2018)show that inflation has a negative and insignificant effect in moderating mudaraba financing on profitability.

Methodology

This type of research is a quantitative study using data in the form of financial reports published by Islamic Commercial Banks and inflation data published by the Central Statistics Agency (BPS). The sample in this study were 10 Islamic Commercial Banks that were included in the criteria, namely Sharia Commercial Banks that are registered and operating in Indonesia in 2020, Sharia Commercial Banks that issue financial reports in 2020, Sharia Commercial Banks that have complete data and ratios according to with the variables used in the study.

The sampling period was from January 2020 to September 2020.

Results and Discussion

Multiple Linear Regression Analysis

The test results using multiple linear regression analysis show the relationship between variables X1, X2 and variable Y, The results mention in the table below.

Table 3

Multiple Linear Regression Analysis

Coefficient

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

B

Std. Error

Beta

1

(Constant)

.014

.003

 

5.676

.000

NPF

-.228

.054

-.588

-4.222

.000

Mudaraba Financing

4.609E-9

.000

.306

2.200

.037

a. Dependent Variable: ROA

 

The regression coefficient is negative and positive, which means that there is a negative and positive relationship with the profitability of Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic. The constant value is 0.014, which means that there is a variable non-performing financing (NPF) and mudaraba financing, the value of the profitability variable is 0.014.

Hypothesis Test

Hasil uji hipotesis dapat dilihat pada tabel dibawah ini:

Table 4 

T-Test Result

                                               Coefficients^a

Model

Unstandardized Coefficients

Standardized Coefficients

T

Sig.

 

B

Std. Error

Beta

 

1

(Constant)

.014

.003

 

5.676

.000

 

NPF

-.228

.054

-.588

-4.222

.000

 

Mudaraba

financing

4.609E-9

.000

.306

2.200

.037

 

a. Dependent Variable: ROA

 

Table 5

F-Test Result

                                               ANOVA^a

Model

Sum of Squares

Df

Mean Square

F

Sig.

1

Regression

.001

2

.000

12.636

.000^b

Residual

.001

27

.000

 

 

Total

.001

29

 

 

 

a. Dependent Variable: ROA

 

Tabel 6

R²Test Result (Coefficient Determination)

                                        Model Summary

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

1

.695^a

.483

.445

.0053069

1. Predictors: (Constant), Mudaraba Financing, NPF

 

The results of the tests that have been mention above show that:

 

The effect of non-performing financing (NPF) on profitability at Islamic Commercial Banks during Coronavirus Disease (COVID-19).

The test results from table 13 above, obtained a positive effect and a significance value of 0.000. the comparison of the significance value with the level is 0.000 <0.05. because sig. <ꭤ, so it can be concluded that Ha is accepted and H0 is rejected, meaning that the regression coefficient on the non-performing financing (NPF) variable partially has a negative and significant effect on profitability at Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic.

According to Bank Indonesia regulations, a good NPF value is below 5%. If it exceeds 5%, it shows that the financing at Islamic banks is getting worse, so that it can influence Islamic banks to get a profit and can adversely affect ROA. The results of this study are in line with research conducted by (Rachmat & Komariah, 2017)in this research shows that non-performing financing has a significant negative effect on profitability.

The effect of mudaraba financing on profitability it Islamic Commercial Banks during Coronavirus Disease (COVID-19).

The test results from table 13 above, obtained a positive and significant effect of 0.037. the comparison of the significance value with the significance level is 0.037 <0.05. because Sig. <ꭤ, so it can be concluded that Ha is accepted and H0 is rejected, meaning that the regression coefficient on the mudaraba financing variable partially has a positive and significant effect on profitability at Islamic Commercial Banks during the 2019 coronavirus disease pandemic (COVID-19).

This explains that the higher the distribution of mudaraba financing to customers, it is not always or very little to increase the profitability of a bank. The results of the study are in line with previous research conducted by (Nawawi et al., 2018)showing that partially mudaraba financing has a positive effect on return on assets (ROA).

 

The effect of Non-Performing Financing and mudaraba financing on profitability it Islamic Commercial Banks during Coronavirus Disease (COVID-19).

 

The test results in table 5 above show that the F value is 12,636 with a significance level of 0.000 <0.05. So it can be concluded that the variable non-performing financing (NPF) and mudaraba financing have a simultaneous (joint) effect on the profitability of Islamic Commercial Banks during the 2019 coronavirus disease pandemic (COVID-19).

The results of this study are in line with previous research conducted by(Cahyaningrum, 2016)showing that there is an effect of mudaraba, DPK and NPF financing together on return on assets (ROA).

Moderated Regression Analysis

The results of the moderation regression test can be seen in the table below:

Tabel 6

MRA Test Result

Coefficients^a

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

B

Std. Error

Beta

1

(Constant)

.016

.010

 

1.501

.146

NPF

-.251

.221

-.647

-1.134

.268

Mudaraba

financing

3.667E-9

.000

.244

.439

.665

Inflasi

-.061

.459

-.051

-.132

.896

X1Z

1.041

9.818

.068

.106

.916

X2Z

4.227E-8

.000

.067

.117

.908

a. Dependent Variable: ROA

 

Tabel. 7  

F-test MRA Result

ANOVA^a

Model

Sum of Squares

df

Mean Square

F

Sig.

1

Regression

.001

2

.000

9.482

.001^b

Residual

.001

27

.000

 

 

Total

.001

29

 

 

 

a. Dependent Variable: ROA

b. Predictors: (Constant), X2Z, X1Z

 

The results of the tests that have been done above show that:

Inflation moderates the effect of non-performing financing (NPF) on profitability at Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic.

The test results in table 16 above show that inflation cannot moderate non-performing financing (NPF) on profitability (ROA) with the multiplication regression coefficient of NPF and inflation (X1Z) of 1.041 and a significance value of 0.916> 0.05. it can be concluded that Ha is rejected and H0 is accepted, meaning that inflation cannot moderate the effect of non-performing (NPF) on profitability at Islamic Commercial Banks during the 2019 coronavirus disease pandemic (COVID-19).

The results of this study are in line with previous research by (Hutagalung, 2019)showing that inflation cannot moderate the effect of NPF on ROA. Thus, the inflation variable cannot be used as a moderation for the effect of non-performing financing (NPF) on profitability (ROA) at Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic. In theory, if the higher the NPF value, the smaller the ROA value.

Banking in this modern era already has good banking, so that banks are required to be able to expand their reach, which is not only focused on financing, fee-based income is also one of the potentials for banks to earn profits such as securities and other investments. With the existence of other income obtained by the bank through its business activities, the bank is able to cover the financing risk that will occur to the bank.

 

Inflation moderates the effect of mudaraba financing on profitability at Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic.

The test results in table 6 above show that inflation cannot moderate mudaraba financing on profitability (ROA) with the multiplication coefficient value of mudaraba financing and inflation (X2Z Interaction) of 4.227E-8 and a significance value of 0.908> 0.05. So it can be concluded that inflation cannot moderate the relationship of the mudaraba financing variable to profitability at Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic. This is because the profit opportunity that exists in the financing of Islamic Commercial Banks has been agreed at the beginning of the contract, so that when inflation occurs, the agreement cannot change. The results of this study are in line with research(Hanania, 2015)showing that inflation in the short term does not have a significant effect on profitability.

 

Inflation moderates the effect of non-performing financing (NPF) and mudaraba financing on profitability at Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic.

The test results in table 7 can be seen that the significance value is 0.001 <0.05. So it can be concluded that simultaneously the inflation variable can moderate the influence of the non-performing financing and mudaraba financing variables on the profitability variable (ROA) of Islamic Commercial Banks during the 2019 coronavirus disease pandemic (COVID-19).

 

Conclusion

Based on the results of the study, it can be concluded that the variable non-performing financing (NPF) and mudaraba financing have a simultaneous (joint) effect on profitability at Islamic Commercial Banks during the 2019 coronavirus disease pandemic (COVID-19). Meanwhile, the inflation variable can moderate the influence of the non-performing financing and mudaraba financing variables on the profitability variable (ROA) of Islamic Commercial Banks during the 2019 coronavirus disease (COVID-19) pandemic.

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