Resilience of Islamic Banking in Indonesia: A VECM Analysis of Macroeconomic Shocks and Medium-Term Recovery Dynamics

Authors

  • Fariza Bahari Fadliani Politeknik Negeri Bandung
  • Muhammad Muflih
  • Iwan Setiawan
  • Dwi Suhartanto
  • Moch. Edman Syarief

DOI:

https://doi.org/10.58932/MULD0047

Keywords:

Early Warning System, Islamic Banking, Monetary Crisis, Stable Financial Performance, VECM

Abstract

The failure of conventional economics during the 2007/2008 crisis spurred the emergence of Islamic economic alternatives this day. Comparative studies have assessed its resilience. This research comprehensively examines Islamic banking's resilience to economic crises, addressing gaps in previous studies that focused only on specific crisis periods. Monthly data from 2015-2023 from SPS- OJK, BPS, and Monetary Statistics-BI were analyzed using VECM methods. Real GDP was found to have the most significant negative impact on various Indonesian Islamic banking performance variables. Islamic banks can, therefore, utilize an Early Warning System for real GDP. The variables affected by macroeconomic shocks show short- to medium-term dynamics, recovering from periods 3-5, and stabilizing performance. This study fills previous research gaps that indicated instability in Islamic banking by considering only short post-crisis periods. In the medium term, Islamic banking in Indonesia has proven effective in recovering from crises, as shown by the analysis of recurring economic crises.

Author Biographies

Fariza Bahari Fadliani, Politeknik Negeri Bandung

Fariza Bahari Fadliani is a master’s student at Politeknik Negeri Bandung, specializing in Islamic Finance and Banking.
She currently works in Organizational Development and Performance at Migas Utama Jabar, a Regional Owned Enterprise in Bandung. Fariza has extensive experience in Compensation and Benefits, as well as in Finance. She is passionate about Islamic Finance and its applications in developing world finance. She can be reached via: fariza.bahari.kps23@polban.ac.id.

Muhammad Muflih

Muhammad Muflih is Professor in Politeknik Negeri Bandung, Indonesia. His research interest is in consumer behavior, Fiqh of Muamalah, Islamic Bank. His articles have been published in various peer-reviewed journals such as International Journal of Bank Marketing, Journal of Islamic Accounting and Business Research, and International Journal of Ethics and Systems among others. Muhammad Muflih is corresponding author and car be contacted at: m.muflih@polban.ac.id.

Iwan Setiawan

Iwan Setiawan is a senior lecturer and researcher at The Accounting Department, Politeknik Negeri Bandung, Indonesia. Currently, He serves as the Head of The Accounting Department. His research interests are in Islamic banking and finance, addressing topics such as financing risk, financial performance, and the role of Islamic banking in Indonesia's economic growth. He can be reached via iwan.setiawan@polban.ac.id.

Dwi Suhartanto

Dwi Suhartanto is Professor in Politeknik Negeri Bandung, Indonesia. His research interest is in consumer behavior, tourism and Islamic Marketing. His articles have been published in various peer-reviewed journals such as Journal of Business Research, Journal of Cleaner Production and Current Issues in Tourism among others. Dwi Suhartanto is corresponding author and car be contacted at: dwi.suhartanto@polban.ac.id

Moch. Edman Syarief

Moch. Edman Syarief is a senior lecturer and researcher at The Accounting Department, Politeknik Negeri Bandung, Indonesia. He has experience studying Asset and Liability Management, Applications of Islamic Finance, Applied Econometrics, and other related fields. His research interests are in sharia stock screening, financial modeling, Islamic corporate social responsibility, Islamic corporate governance, and financial performance. He can be reached via moch.edman@polban.ac.id.

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2025-06-30

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Fariza Bahari Fadliani, Muhammad Muflih, Iwan Setiawan, Dwi Suhartanto, & Moch. Edman Syarief. (2025). Resilience of Islamic Banking in Indonesia: A VECM Analysis of Macroeconomic Shocks and Medium-Term Recovery Dynamics. International Journal of Islamic Economics and Governance, 6(1), 1–26. https://doi.org/10.58932/MULD0047

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