Does Spin-off Obligation of Sharia Business Units from its Parent Commercial Banks Enhance Their Performance?

The purpose of this study was to compare banks' ratios: return on assets (ROA), the ratio of operating costs to operating incomes (BOPO), and the ratio of financing to total third-party funding (FDR) before and after the spin-off, as well as ROA, FDR, and BOPO between pure spin-off through separation and impure spin-off through acquisitions and conversion. In ۲۰۱۹, there were eleven sharia banks in the population. This study included five banks in the research samples based on quarterly data availability three years before and after the spin-off. The method used is the two related samples Wilcoxon test due to the abnormally distributed data before and after the spin-off and the independent sample t-test for comparing ROA of a pure and impure spin-off, also used Mann-Whitney test to compare FDR and BOPO between pure and impure spin-off. The results are that ROA after spin-off is higher but insignificant than before spin-off; BOPO after spin-off is significantly higher than before spin-off. FDR after spin-off is significantly lower than before spin-off. Furthermore, an impure spin-off provides a significantly higher ROA than a pure spin-off. Impure spin-off gives higher BOPO but is insignificant. Finally, impure spin-off results in a significantly higher FDR than the pure one. These results imply that the limited-service coverages due to their small size challenge newborn BUSes to increase their market share. The too-small sizes also become the burden of newborn BUSes to benefit-cost reduction through economies of scale.

Keywords:

Return on asset , Finance to Deposit Ratio , Operating Expenses to Operating Income , Spin-off , Sharia Banks