The determinants of deposits in Islamic and conventional banks: an Indonesian study

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Abstract

Deposits are an important source of liquidity for banking operations and become the determinant of a country’s savings. Our paper tries to examine the effect of interest rates on the total deposits of Indonesian Conventional and Islamic banks. Using Indonesian banking data sources from January 2018 to January 2020 and generalised method of moments (GMM) regression models, our empirical result shows that interest rates significantly positively affect conventional bank deposits. When the Central bank raises interest rates, commercial banks will increase lending rates and pay higher interest rates to depositors. In addition, the Islamic Banking Rate of Return also has a significant positive effect on deposits. Therefore, the higher interest rates lead to the higher bank’s overall average deposits.

Original languageEnglish
Pages (from-to)273-292
Number of pages20
JournalInternational Journal of Monetary Economics and Finance
Volume15
Issue number3
DOIs
Publication statusPublished - 2022
Externally publishedYes

Keywords

  • IPI
  • Industrial Production Index
  • Islamic bank
  • conventional bank
  • deposit
  • financial empowerment
  • inflation
  • interest rate
  • rate of return

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