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Determinants of Islamic Bank Deposits Under Dual Banking System: The Case of Indonesia

This paper extends the literature on the determinants of deposit facilities, particularly in Islamic banks under a dual banking system. Using the case of Indonesia, the Stock and Watson dynamic OLS (DOLS) procedure is employed in order to examine the effect of selected variables on the funds deposited in Islamic bank deposit facilities. The analysis shows that the level of funds in Islamic bank saving deposit is influenced by the rate of returns on savings and the number of Islamic bank offices. In addition, a positive and significant coefficient of interest rate on saving deposits in conventional banks indicates that Islamic bank depositors are using the interest rate as an indicator for the expected returns. A similar result is obtained in the case of Islamic banks’ investment deposits, but with an insignificant coefficient of rate of returns and significant coefficients of inflation and economic growth.