Does Banking Digitization Reduce Non-Performing Financing in Sharia Commercial Banks?: Evidence from Indonesia

: Digitalization in the banking sector has received great urgency and attention in the last few decades because it has been able to provide many conveniences for banks and customers in conducting transactions, this condition has further increased productivity. This increase in productivity describes an increase in income so that Non-performing financing faced by Sharia Commercial Banks in Indonesia can be minimized. Non-performing financing is necessary because a high NPF can disrupt banking operations. This study aims to study and analyze whether digitalization in the economic and banking sectors can reduce Non-performing financing in Sharia Commercial Banks in Indonesia. This research is a positivist study with a quantitative approach which is analyzed using panel regression with dummy variables, with the help of EViews software. This study uses secondary data in the form of banking digitization data, internal factors in Sharia Commercial Banks in Indonesia. This research provides evidence that digitalization that is occurring in the economic and banking sectors, as well as internal and external banking conditions, have made a significant contribution to reducing Non-performing financing in Sharia Commercial Banks in Indonesia.


Introduction
Banking is part of the financial sector which has an important role in the economy, including in which sharia commercial banks are enough to take the attention of the Indonesian people.In circulation, Islamic commercial banks are faced with many problems related to non-performing financing.Non-performing financing needs to get a major place in financial traffic in the banking sector, especially Islamic commercial banks in Indonesia, which incidentally are still in the development and development stage because non-performing financing can hinder the flow of funds from banks to the public because there is a systemic risk of failure.as well as contingent effects, especially if the capital adequacy ratio is low, the financing to deposit ratio is large enough, returns are low, as well as various other internal banking conditions that are not good enough, will further worsen the condition of Islamic banking in Indonesia.
The strategy to overcome this problem is of course inseparable from the contribution of internal factors from Islamic commercial banks themselves, which are generally measured by several indicators such as FDR (Financing to Deposit Ratio), CAR (Capital Adequacy Ratio), ROA (Return on Assets), and BOPO (Operating Costs to Operating Income).Some of these internal factors need to be managed effectively and efficiently in order to minimize the risk of non-performing financing.Figure 1   The era of the Covid-19 pandemic has accelerated digital acceleration in Indonesia and has had a major impact on the financial sector, especially banking and therefore apart from internal factors, digitalization has also contributed.
Islamic banks as a part of the banking system in Indonesia are also influenced by the development of digitalization.Digital finance in the banking world is related to the emergence of various digital services, such as mobile banking applications where customers can carry out various financial transactions without having to come to the physical banking office in person.The financial services authority states that from 2016 to 2021, mobile banking transactions will increase by more than 300% (Idawati & Syafputri, 2022), so that banks will find it easier to control and mitigate various possibilities that will arise in the future, including nonfinancial services.-performing financing.Several previous studies have carried out similar research (Achmad Ali Fikri, Syamsul Arifin, 2022;Azmi et al., 2023;Ikhsan & Karyatni, 2023;Limited, 2022;Mamun & Rana, 2023;Marliyah et al., 2021;Muslimah, 2019;Prastyo & Anwar, 2021;Shonhadji, 2020;Wu et al., 2023;Xu et al., 2022), but have concentrated more on internal and macroeconomic factors.And not many have included banking digitalization such as mobile banking and internet banking created by commercial banks as one of the most important parts in mitigating the risk of non-performing financing at cyaria commercial banks in Indonesia.For this purpose, this research is aimed at providing theoretical and empirical evidence of the impact of digitalization in the financial sector on non-performing financing in commercial banks in Indonesia.

Method
This research is a positivism research with quantitative methods based on hypothesis testing and analyzed by statistical procedures (Gujarati & Porter, 2009;Wooldridge, 2002 ;Baltagi, 2005).This method is used to obtain empirical evidence regarding how digitalization can affect problem financing at Islamic Commercial Banks in Indonesia.This study uses secondary data in the form of panel data obtained from official publications from institutions related to research, including Bank Indonesia, the Central Bureau of Statistics, the Financial Services Authority, and various relevant sources.The observation period in this study is 12 years from 2010 to 2021.Meanwhile, the research object consists of 11 Islamic Commercial Banks that have been registered with the Financial Services Authority and meet the research criteria and data availability.This study was analyzed using panel data regression analysis with the help of Eviews software with the stages of model building, model selection, classical assumption testing, and hypothesis testing.The models in this research are as follows: The dependent variable used is non-performing financing at Islamic Commercial Banks in Indonesia (NPF).The independent variables include banking internal conditions consisting of ROA, FDR, CAR, BOPO and Digitalization (Digital).The dummy variable is used to capture the effect of digitalization on banking, be it internet banking or mobile banking.In this case, a bank that has not implemented internet banking and mobile banking is purchased with a value of 0, and is given a value of 1 if it has used and implemented internet banking and mobile banking.This study also uses literature studies and documentation studies in collecting data, evaluating, and analyzing various information needed in this research.

Result and Discussion
This study uses the panel data regression method, with several stages, first conducting descriptive statistical tests, selecting models, testing classical assumptions and then testing the hypotheses.The following are the results of statistical descriptive tests to see the mean, standard deviation, maximum, minimum, variance, range, kurtosis, and skewness.Based on these results, it is explained that the coefficient value for digitization is 0.147 indicating that if there is an increase of one percent in digitization that occurs, non-performing financing will decrease by 0.147 percent.A one percent increase in FDR will increase NPF by 0.050 percent.Furthermore, if there is an increase in CAR by one percent, non-performing financing will decrease by 0.073 percent.Likewise with ROA and BOPO, if there is an increase of one percent in these variables, non-performing financing will increase by 0.014 percent.
The test results show that all the variables in this study together have a significant influence on non-performing financing in Islamic commercial banks in Indonesia with a probability f value of 0.000 <0.05 and an f-count value of 11,582 greater than the f-table value of 2.17 .Likewise with the partial effect, all independent variables have a significant effect on non-performing financing in commercial banks in Indonesia.

Conclusion
This research provides evidence that digitalization that is occurring in the shows fluctuating developments in the condition of non-performing financing and several internal banking factors.Based on Figure 1, it is illustrated that the NPF condition of Islamic commercial banks moves in tandem with internal factors and in several years has experienced a developmental phenomenon that is contrary to theory.

Figure 1 .
Figure 1.Development of the Internal Conditions of Islamic Commercial Banks for 2010-2021 banking sector is able to support the development of non-performing financing, especially in Islamic commercial banks in Indonesia which are examined in this study.Various conveniences provided by digitization such as convenience in financial transactions, loan payments, as well as various conveniences in conducting other banking traffic make the public and Islamic commercial banks more effective and efficient in financial activities which can ultimately increase productivity for banking and reduce Non-performing financing that occurs, as has been proven by the significant influence of digitalization and the internal conditions of banking in Indonesia.This research, of course, has limitations that are limited to only eleven banks in Indonesia by not including macroeconomic variables which also certainly explain variations in non-performing financing in Islamic commercial banks in Indonesia, so further and in-depth research is needed.This research implies that all banks in Indonesia must be more adaptive to the development of digitalization and the development of cybercime in the future.

Table 1
Based on Table 1, the minimum NPF value is 0.02, the lowest NPF value is owned by bank BTPN Syariah.Meanwhile, the highest NPF value is 22.04 which is owned by Bank BJB Syariah.The average NPF value is 2.96, and the standard deviation is 2.69 which means the NPF value at Islamic commercial banks is 26.9%.Next is selecting the right model to use in the study by carrying out the Chow test, Hausman test, and LM test, as shown in Table 2 below.Based on the results of the chow test, where the probability value is 0.000 > 0.05, thus the model chosen is the fixed effect model.
Durbin-Watson value of 2.2460 is between the dU and 4-dU values, so the model is free from autocorrelation problems.Meanwhile, for the multicollinearity test the probability value of all variables is below 0.09, so it is concluded that it is free from multicollinearity problems.Likewise with the heteroscedasticity test, the probability value of all variables is above 0.05 so that the model can be said to be free from heteroscedasticity problems.Furthermore, the results of panel data regression analysis to find out how digitalization developments and internal conditions affect non-performing financing in Islamic commercial banks in Indonesia are presented in table l.5.Submitted:24-08-2022, Revised: 12-09-2023, Accepted: 28-10-2023