THE IMPACT OF ISLAMIC BANKING MERGER TO THE PROFITIBILITY IN INDONESIAN ISLAMIC BANKING INDUSTRY

ACHMAD RAJAB AFANDI, AFANDI (2025) THE IMPACT OF ISLAMIC BANKING MERGER TO THE PROFITIBILITY IN INDONESIAN ISLAMIC BANKING INDUSTRY. S2 thesis, Universitas Andalas.

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Abstract

THE IMPACT OF ISLAMIC BANKING MERGER TO THE PROFITIBILITY IN INDONESIAN ISLAMIC BANKING INDUSTRY Thesis by Achmad Rajab Afandi Supervisor: Mohamad Fany Alfarisi, SE, MS Fin, Ph.D and Dr. Fajri Adriant, S.E, M.Bus, Adv ABSTRACT This study investigates the impact of the 2021 merger of three state-owned Islamic banks—Bank Syariah Mandiri, BNI Syariah, and BRI Syariah—into Bank Syariah Indonesia (BSI) on the profitability of Indonesia’s Islamic banking industry. Using quarterly panel data from 2018Q1 to 2023Q4, profitability is measured by Return on Assets (ROA), with explanatory variables including market competition (Herfindahl-Hirschman Index/HHI), market concentration (Concentration Ratio/CR), Financing to Deposit Ratio (FDR), and Operating Expense Ratio (BOPO). A merger dummy variable was introduced to capture structural changes associated with the consolidation. The regression results show that market structure variables (HHI and CR) were not significant determinants of profitability in either the pre- or post-merger periods. By contrast, internal performance indicators played a decisive role: FDR exhibited a strong and consistent positive effect, while BOPO had a significant negative effect on ROA. The merger dummy variable carried a negative coefficient, suggesting a short-term decline in profitability caused by integration costs and transitional inefficiencies. Overall, the findings suggest that while the merger altered industry concentration, sustainable profitability in Indonesia’s Islamic banking sector depends less on structural dominance and more on internal efficiency and liquidity management. These results provide important implications for policymakers and regulators, emphasizing that merger-driven consolidation should be accompanied by strategies to enhance cost efficiency, strengthen financial intermediation, and safeguard long-term competitiveness in the Islamic financial sector. Keywords: Indonesian Islamic Banking, Merger, Competition

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