Financing to Deposit Ratio Impact on Non-Performing Financing in Islamic Housing Finance

Abstract

Introduction: Property sector is recognized as a key driver of national economic growth and has proven its resilience during COVID-19 pandemic. Home financing not only serves as a key driver of economic growth in the real sector but also reflects the dynamics of the banking industry. Non-performing financing (NPF) in this sector is a crucial indicator of the quality of the banking portfolio and the overall stability of the financial system.

Objectives: This study aimed to evaluate the factors influencing Non-Performing Financing (NPF) of Islamic housing finance ownership in Indonesia during pandemic, with a particular focus on the role of the Financing to Deposit Ratio (FDR).

Methods: Due to the presence of cointegration, data analysis was conducted using Vector Error Correction Model (VECM).

Results: The findings revealed that during the pandemic, the FDR of Islamic banks significantly impacted the apartments sector but had no effect on residentials and shophouses in the long-run. In the short-run, FDR had no impact on all sector of NPF housing finance (residentials, apartments, and shophouses).

Implications: The opportunity for access to housing finance increased as the management of NPF improved. A sustained synergy between banks and relevant stakeholders were essential to ensure the continuous growth and development of housing financing in Indonesia, especially during the pandemic, as the property sector serves as a key driver of the real economy.