A Comparative Analysis of Resilience of Islamic and Conventional Banks in Indonesia

The presence of the 2008 Global Financial Crisis (GFC) has adversely impacted both conventional and Islamic banking performances. This study aims to empirically compare the financial performances between Islamic banks and conventional banks during the preand post-2008 GFC periods. It also attempts to compare the financial performance of each Islamic and conventional bank between the preand post-2008 GFC periods. Three state-owned banks from each conventional and Islamic banking category were selected as the study sample using the purposive sampling technique. Based on the independent sample t-test, the study found a significant difference between the Islamic and conventional banking performances during the preand post-2008 GFC periods. Meanwhile, based on the paired t-test, the decline in Islamic banking performance from the pre-2008 GFC to the post-2008 GFC periods was significantly smaller than their conventional banking counterparts. These findings show the Islamic banks' superiority over their conventional banking counterparts due to fair and just practices based on Islamic tenets. Due to their reliance in facing the episodes of crises, the Islamic banks deserve a strong support by government by enhancing prudent Islamic banking regulation. The Islamic banks should strive to operate fully based on the shari'ah principles and prudent banking management.


INTRODUCTION
Throughout history, the economic crisis has repeatedly occurred in the world th economy. During the 20 century, at least 20 times of major economic crises have hit many countries (Davies, 2002). This fact shows that, on average, the major financial crisis occurs once in every five years. The crisis has adversely impacted the welfare of the community and devastated the national economy for a certain period as it took a long time and a great effort to recover from the economic downturn.
During the 21st century, the world was again shocked by the 2008 global financial crisis that started in the US. The crisis has been claimed as the worst financial crisis since the 1930s Great Depression by George Soros, Joseph Stiglitz, the IMF, and other economists (Tong & Wei, 2008;Kassim, Majid, & Yusof, 2009;Kassim & Majid, 2010;Kassim, Majid, & Hamid, 2011). This event stems from the announcement of the largescale French bank, BNP Paribas, about the freezing of high-risk of the US home mortgage stocks, or better known with the term subprime mortgages since August 2007. As a result, various reactions emerged in the financial markets, and in the end, the impact spread to multiple countries Kassim et al., 2009;Kassim et al., 2011;Majid, 2018).  (Pratikto & Sugianto, 2011).
Despite having strong economic fundamentals (Sugema, 2012), Indonesia also hit by the 2008 global financial crisis as seen from reactions in the capital market and financial markets (Bank Indonesia, 2009). In the end of 2008, the stock price index in Indonesia fell by -48.41% from 2,627.3 points from the beginning of 2008, and at the same time, the value of market capitalization and trading volume declined sharply. The banking industry was also adversely affected by the crisis because foreign investors had withdrawn their investment funds in some companies. As a result, the value of productive assets in the number of banks decreased both in the form of loans and securities purchased by banks. Likewise, the banks' capital adequacy also dramatically reduced due to losses from the decline in the quality of productive assets and increased non-performing loans (Sudarsono, 2009 Even though Islamic banks have proven to be able to survive during the 1997 East Asian economic crisis, Islamic banks were also adversely impacted by the 2008 Global Financial Crisis (GFC). However, the effect of 2008 GFC on the Islamic bank was far smaller than their conventional counterparts. This finding is as evidenced by Kassim and Majid (2010), who found that although Islamic banks are more resilient to the economic crisis, Islamic banks are also vulnerable to financial crises. This is contrary to popular belief so far that the Islamic financial system is fully protected from the crisis because of its interest-free nature.
The presence of 2008 GFC has positioned the banks in a more difficult situation, considering the fierce competition due to the decline in banking performance. Banks as intermediary financial institutions, which collect and distribute funds from and to the public, their business continuity are highly dependent on their ability to cope with the impacts of the crisis to maintain good performances. The degree of impact of the crisis and kinds of strategy to preserve performances are among the critical factors determining the success of banks' competition.
Competition between Islamic banks and conventional banks is very dependent on the financial performance of the bank itself. The financial performance of a bank reflects the health condition of the bank. By having a good bank performance, the bank can provide better services and benefits to internal and external parties of the bank (Betharino, Susanti, & Joko, 2015). For this reason, research on measuring and enhancing financial performance is increasingly important so that banks can fulfil all functions, roles, and objectives. If the banks can shield themselves from the impact of the crisis, the banks would easily maintain good financial performance amid an economic crisis.
Many previous studies have been conducted to measure Islamic banking performance in other countries and Indonesia. For example, Rosly and Bakar (2003) and Wasiuzzaman and Gunasegavan (2013) measured Islamic banking performance in Malaysia using its average value. Jaffar and Manarvi (2011) and Khan, Khan, and Tahir (2017) measured Islamic banking performance in Pakistan using Capital, Asset Quality, Management, Earning, and Liquidity approaches (CAMEL) approaches, while Erol, Baklaci, Aydoğan, and Tunç, (2014) measured Islamic banking performance using the CAMEL approach in Turkey. All of these studies only measured the performances of Islamic banks and did not compare them with conventional banking performances.
Previous studies comparing Islamic banks' performance with conventional banks have been conducted by Hazzi and Kilani (2013) in Malaysia, using an independent sample t-test.
However, the study did not compare the performance of banks between various periods of economic crisis. In the context of Indonesia, previous studies comparing the financial performance of Islamic banks have been conducted by Winarso (2008), Pratikto andSugianto (2011), andSabbina (2014). However, their studies only compared the financial performance of Islamic banks and ignored its comparison with conventional banks.
In Indonesia, the comparative financial performance of conventional banks and Islamic banks in Indonesia has been studied by Subaweh (2008), Ardiyana (2011), Setyaningsih and Utami (2013), Nugraha (2014), and Betharino et al (2015). However, their sample selection consists of few conventional and Islamic banks for a maximum of the fiveyear study period. Besides, these studies did not compare the banking performance across the economic crisis period.
Referring to the above-reviewed studies, it is clear that there are still shortcomings from previous studies so as to provide space for this research to fill it. More specifically, this study aims to empirically compare between conventional and Islamic banking performances in the pre-and post-2008 GFC periods. In contrast to previous studies, the main novelty of this study is in terms of examining more conventional banks and Islamic banks with a more In this study, financial performance is defined as the ability of banks to generate net income based on the level of assets owned (Rose & Hudgins, 2005). Financial performance is measured using the financial ratio of Returns on Assets (ROA), which is the amount of profit after tax divided by the total amount of bank assets. The use of ROA in this study is due to its ability to provide a manager, investor, or analyst an idea as to how efficient a company's management is at using its assets to generate earnings. ROA also resolves a major shortcoming of other banking performance measures, such as Return on Equity (ROE) that fails to show if a bank has excessive debt or is using debt to drive returns. In addition, the use of ROA is more appropriate to measure bank performance than the Return on Investment (ROI). ROI is an analysis of performance parameters based on a given investment, while the ROA corresponds to the total asset of a business or investment portfolio of an investor. Thus, ROA is able to show the real conditions of the bank in generating profit based on the given amount of assets or how a bank is actually behaving in terms of converting assets into net capital. Many previous studies have adopted ROA to measure banking performance (Aliabadi, Dorestani, & Balsara, 2013;and Kopecká, 2018).
Furthermore, to test the differences in financial performance between conventional banks and Islamic banks in the pre-and post-2008 GFC periods, an independent sample t-test was used. Meanwhile, to examine differences in financial performance between the pre-and post-2008 GFC periods of a similar banking group, the study uses a paired sample t-test or a dependent t-test.

RESULTS AND DISCUSSION
This section provides and discusses the findings of the study into several sub-sections, namely descriptive statistics, correlation coefficients, comparison between financial performance of

Table 1. Descriptive StatisticsBank's Financial
These findings show that the decline in the financial performance of the conventional banks was higher by 4.31% than that of Islamic banks counterparts. In other words, the conventional banks have experienced a more volatile financial performance as compared to the Islamic banks over the 2003-2017 period. This finding is also evidenced by a larger value of the conventional banks' standard deviations from their Islamic banks' counterparts over a different sample of the study period. These findings also provide initial evidence of better performance and more resilience of the Islamic banks towards the economic crisis. To further confirm the significant differences in their banking performances, the study would conduct the independent and paired t-tests in the next section.
However, these preliminary empirical findings are supported by Kassim and Majid (2010). They documented that the 1997-and 2008-financial crises have caused more deterioration of conventional banks than Islamic banks in Malaysia. Our findings also support the depositors' belief that Islamic banks were more resilient in facing a financial crisis that has attracted more inflow of deposits into the banks during the 2008 financial crisis (Abduh, Omar, & Duasa, 2011).    performances, which is relatively higher during the crisis period (Yusof & Majid, 2008;. Our finding provides further support that destabilizing interest rates during the crisis period would have an insignificant adverse impact on the Islamic banks (Mohd Yusof & Majid, 2007). Table 4 reports the findings of comparative performances between conventional and Islamic banks over the pre-2008 GFC, post-2008 GFC, and full-sample periods using the independent sample t-test.

Table 4. Comparison between Performances of Conventional and Islamic Banks in the Pre-and Post-2008 GCF Periods
*** ** Note: n shows the number of observations. and indicate significance at the 1% level.
As shown in Table 4, the performances of conventional banks were higher than those of Islamic banks over the study periods, both before and after the GFC, and the findings were similar to Tables 1 and 2. This finding also confirms the discovery of the previous study by Ardiyana (2011), who documented a higher profitability ration of conventional banks as compared to their Islamic banks' counterparts.  Table 4 also shows that there were significant differences in financial performances between conventional and Islamic banks in the periods of pre-and post-2008 GFC as well as a full-sample period at the 1% level of significance, as shown by the t-tests for equality means and GFC has hit the banking industry adversely in Indonesia, but the conventional banks have been hit hardest by the GFC than Islamic banks. In comparison, the conventional banks appeared to be more receptive to the 2008 GFC than Islamic banks counterparts amidst the crisis period. These empirical findings highlighted the nuisances of the fragility of modern finance during the turbulent financial period. Conversely, the stability of Islamic banks during the economic turmoil was mainly due to their nature that is free from elements of interest (riba), gambling (maysir), and uncertainty (gharar) (Majid, 2018).
The superiority of Islamic banking performance over their conventional counterparts during the crisis period is supported by an earlier study conducted by Nugraha (2014). The Islamic banks were more efficient (Ahmad & Pandey, 2010) and had better performance and have been less impacted by the crisis (Pratikto & Sugianto, 2011). Besides, with a better asset and risk management quality, Islamic banks could easily shield themselves from the adverse effect of the crisis (Kassim & Majid, 2010;Majid, Musnadi, & Putra, 2014).

A Comparison of Performances of Conventional and Islamic Banks between the Pre-and
Post-2008 GFC Periods  Kadir, Abdullah, Harun, Nordin, and Jaffar (2011) and Sabbina (2014), who found significant differences in Islamic banks' performances between the pre-and post-2008 economic crisis. These findings further confirm that the presence of the 2008 GFC has impacted performances of the banking industry, both conventional and Islamic, in Indonesia, confirming the results by Winarso (2008) and the statement of Bank Indonesia (2010).
However, the decline in the banking performances was severely experienced by the conventional banks by -2.28 points as compared to only -0.40 points experienced by the Islamic banks. This evidence confirms the more resilience, stability, and superiority of Islamic banks towards the economic crisis (Kassim & Majid, 2010;Abduh et al., 2011;Majid et al., 2014).  (Nastiti & Kasri, 2019). Having these government supports, it is believed that the Islamic banking performance can be promoted nationwide.

CONCLUSION
This study empirically compared differences in performances between conventional and Islamic banks in the pre-and post-2008 GFC periods. It also empirically compared the differences in the banking performances between the pre-and post-2008 GFC periods. Based on the independent sample t-test, the study found a significant difference between the Islamic and conventional banking performances during the pre-and post-2008 GFC periods. The conventional banks recorded higher performances compared to their Islamic banking counterparts over all periods of the study. The longer establishment, larger size, and more significant market share of the conventional banks were among the critical factors contributing to their higher performances.
Furthermore, the study found a decline in the performances of both conventional and Islamic banks from the pre-to the post-GFC periods. However, based on the paired t-test, the reduction in Islamic banking performance from the pre-2008 GFC to the post-2008 GFC was significantly smaller than their conventional banking counterparts. These findings show the stability and resilience of the Islamic banks over their conventional banking counterparts in facing the 2008 GFC due to their fair and just practices based on the Islamic tenets. This empirical evidence demonstrated that Islamic finance, particularly Islamic banking institution, could offer a solution to the existing financial turmoil and be a viable alternative to the episodes of turbulent economic system worldwide. Thus, to create a more stable banking system in the country, Islamic banks should be further strengthened and promoted. This could be done, inter alia, by providing supportive financial regulations for the Islamic banks to grow faster in the future. The government is also advised to further support Islamic banks' progress by placing more funds into Islamic banks.
Future studies might use different measures of banking performances to provide more robust and comprehensive findings on this topic, such as their contribution to poverty eradication, income inequality, and unemployment reductions. Besides, to present more reliable findings on the changes in conventional and Islamic banking performances across the financial crises, future studies could compare them across different episodes of economic crises, such as the 1997 East Asian crisis, the 2010 European debt crisis, etc. Finally, the comparative study of Islamic and conventional banking performances could also be extended by including more Islamic banks from various countries.