The Role of Capital on Islamic Bank Spin-Offs in Indonesia

Some Islamic banks have experienced decreasing performance after spinning off from the parent company, and it is presumed that the amount of capital may have contributed to the decline. Hence, this paper aims to find a minimum amount of capital that Islamic bank must own after spin-offs in order to able to compete in the market and to achieve excellent performance. We employ the OLS method for small banks (asset below Rp 5 trillion) with variable Capital as the dependent variable and Bank Performance as the independent variable. We found that the relationship between performance and bank capital is a non-linear (quadratic) relationship that is convex, indicating that capital is not the only critical factor that contributes to the bank's improvement. The cluster analysis partially confirms that there is a specific pattern of capital in each of the clusters