Bank ownership and credit risk: an empirical study of Indonesian Islamic local banks

PurposeThis study aims to determine the effect of bank ownership on the credit risk of Indonesian Islamic local banks (ILBs).Design/methodology/approachThis study uses the system generalized method of moments (GMM) estimation technique with a sample of 155 Islamic local banks in Indonesia from 2012 to 2019.FindingsThe results show that commissioner board (D.COW) ownership has a negative effect on credit risk. This indicates that an increase in the number of shares of Islamic local banks owned by the commissioner board reduces credit risk. On the other hand, government ownership (D.GOW), the Sharia supervisory board (D.SOW) and the director board (D.DOW) do not affect credit risk.Practical implicationsThe government, Sharia supervisory board and director board need opportunities to easily own more Islamic local bank shares. Therefore, the provisions regarding the share ownership rights of the government, Sharia supervisory board and director board need to be improved to increase their role in reducing credit risk.Originality/valuePrevious researchers have not studied the effect of government ownership, the commissioner board, the Sharia supervisory board and the ownership of directors on credit risk at the ILB in Indonesia.