Comparative stability analysis of Indonesian banks: Markov Switching—Dynamic Regression for Islamic and conventional sectors

• DOI: 10.1371/journal.pone.0301398
• Publication Date: 2024-04-18T18:14:31Z
• Authors: Imron Mawardi; Muhammad Ubaidill...; Tika Widiastuti; Sunan Fanani; Mohammed Hariri B...; Zainal Hanafi; Anidah Robani
• Keywords: Proxy (statistics)

The banking industry necessitates implementing an early warning system to effectively identify the factors that impact bank managers and enable them make informed decisions, thereby mitigating systemic risk. Identifying influence banks in times of stability crisis is crucial, as it ultimately contributes developing improved system. This study undertakes a comparative analysis Indonesian Islamic conventional across distinct economic regimes-crisis stability. We analyze monthly data from December 2007 November 2022 using Markov Switching Dynamic Regression technique. focuses on conducting between banks, represented by Commercial Bank (ICB) Rural (IRB), Conventional (CCB) (CRB). findings reveal both exhibit higher probability being stable regime than regime. Notably, demonstrate greater propensity remain their counterparts. However, regime, likelihood recovery for Sharia-compliant institutions lower banks. Furthermore, our indicates larger smaller counterparts regarding assets size. pioneers comprehensive comparison Z-score, employed proxy stability, two classifications banks: Sharia (ICB IRB) (CCB CRB). result expected improve awareness elements affect Indonesia, leading deeper comprehension dynamics.