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Abdul Hamid: The Impact of Spin-off Policy  117

THE IMPACT OF SPIN-OFF POLICY TO THE PROFITABILITY 
ON INDONESIAN ISLAMIC BANKING INDUSTRY

Abdul Hamid1

Abstract. The Impact of Spin-off Policy to The Profitability on Indonesian 
Islamic Banking Industry. The purpose of this paper is to analyze that the spin-
off policy that based on Islamic Banking Act No. 21/2008 had an impact on the 
profitability ratio of Islamic banking industry in Indonesia. This research used 
ordinary least square regression. The variable used in this paper is spin-off which 
is used as a dummy variable, and also included the internal factor of industry 
such as deposit margin, non-performing financing (NPF), and efficiency ratio 
(measured by BOPO). The result showed that dummy variable of spin-off, NPF 
and BOPO had an impact on the profitability in Indonesian Islamic banking 
industry. The implication of this result is spin-off policy had a good impact on the 
profitability in Indonesian Islamic banking industry. According to this result, Bank 
Indonesia should stimulate the Islamic banking unit to spin-off from their parents 
conventional banks.  
 
Keywords: Spin-off, Profitability, Islamic Banking, Regression

Abstrak. Dampak Kebijakan Pemisahan Terhadap Profitabilitas di 
Industri Perbankan Syariah. Tujuan tulisan ini ialah untuk menganalisis 
apakah kebijakan pemisahan yang didasarkan pada undang-undang no. 21 
tahun 2008 memiliki dampak terhadap tingkat profitabilitas pada industri 
perbankan syariah di Indonesia. Penelitian ini menggunakan regresi kuadrat 
sederhana untuk menganalisis dampak kebijakan pemisahan ini. Variabel yang 
dipergunakan ialah variabel dummy pemisahan, serta dimasukkan beberapa 
faktor internal seperti marjin deposito, tingkat pembiayaan bermasalah, dan 
rasio efisiensi (diukur dengan BOPO). Hasil yang didapat menunjukkan bahwa 
variabel dummy pemisahan, NPF dan BOPO memiliki pengaruh terhadap 
tingkat profitabilitas pada industri perbankan syariah di Indonesia. Berdasarkan 
hasil ini, Bank Indonesia sebaiknya menstimulasi unit usaha syariah untuk 
memisahkan diri dari bank induk konvensionalnya.

Kata kunci: Pemisahan, Profitabilitas, Bank Syariah, Regresi

First draft: October, 3rd 2014, Revision: December, 5th 2014, Accepted: December, 20th  
2014

1  Syarif Hidayatullah State Islamic University Jakarta, Jl. Ir. H. Juanda No. 95, Ciputat, South 
Tangerang, Banten 

Email : abdul.hamid@uinjkt.ac.id



Al-Iqtishad: Vol. VII No. 1, Januari 2015 118

Introduction

The concept of Islamic banking and finance, which was originally just 
a theoretical discussion, has now become a reality that grows and develops as a 
fact. In fact, the current Islamic banking industry has transformed from simply an 
alternative bank with a bank sharia system that is able to play its role in the world 
economic arena. Islamic banking and financial institutions continue to experience 
a significant growth. According to the annual report of the Islamic Development 
Bank (IDB) in 2009, the Islamic financial institution was expected to grow more 
than 15% per year, with a number of Islamic financial institutions is more than 
300 spread over 75 countries with an estimated total assets of 500 billion dollars, or 
around 4,600 trillion rupiah. In other words, the market has now reached only about 
10%. From this IDB report, we can conclude that the industry is still promising a 
remarkable development in the future. Table 1 shows the development of Islamic 
banking network in Indonesia.

Table 1. Islamic banking network

2006 2007 2008 2009 2010 2011 2012 2013 2014
Islamic banking
Islamic commercial bank 3 3 5 6 11 11 11 11 11
Islamic business unit 20 26 27 25 23 23 24 23 23
Islamic rural bank 105 114 131 138 150 154 158 163 163
Number of Offices
Islamic commercial bank 349 401 581 711 1.215 1.349 1.745 1998 2139
Islamic business unit 183 196 241 287 262 300 517 590 425
Islamic rural bank 105 185 202 225 286 362 401 402 429

Source: Islamic banking statistics, Bank of Indonesia

Islamic banking has grown rapidly in Indonesia. This is shown by the 
development of third-party funds, financing and distribution of assets in the Islamic 
banking industry from the years before the regulations regarding the spin-off and 
after the rule of the spin-off. Seen that from year to year, that an increase in either of 
assets, third-party funds, and the distribution of financing in Islamic banks.

Table 2. The Growth of Third Party Fund, Financing and Asset (Billion rupiah)

2006 2007 2008 2009 2010 2011 2012 2013 2014*
Fundraising 20.672 28.011 36.852 52.271 76.036 115.415 147.512 174.018 186.608
Financing 20.444 27.944 38.194 46.886 68.181 102.655 147.505 179.284 187.886
Asset 26.722 36.537 49.555 66.090 97.519 145.467 195.018 229.557 244.197

Source: Islamic banking statistics, Bank of Indonesia



Abdul Hamid: The Impact of Spin-off Policy  119

On July 16, 2008, has passed Law No. 21 of 2008 concerning Islamic 
Banking. With the passing of this law provides the legal basis and the national 
Islamic banking industry is expected to encourage the development of Islamic 
banking industry for the better. One of the crucial issues in this legislation that 
can accelerate the development of Islamic banking in Indonesia is related to the 
separation (spin-off) Islamic business units both voluntary and mandatory if the 
asset of Islamic banking unit has reached 50% of the parent bank’s assets or after 15 
years since the Law No. 21 of 2008 had been applied. 

According Tübke (2004) there are several factors that affect the separation 
process (spin-off). First, the factors associated with the business activity, the first 
factor is related to the size of the company and the business sector differences 
between the parent company to its subsidiaries. If the first factor is associated with 
the Islamic business unit can be positioned as a conventional bank subsidiaries 
and parent company. Second, the factors associated with the organization and 
management of the company. Third, factors associated with relationships and 
support. There are three patterns of relationships that may be created between 
the parent company with subsidiaries which perform the separation, namely the 
relationship market (market-Relatedness), the relationship of the product (product 
Relatedness), and the relationship of technology (technology-Relatedness). Fourth, 
transfer factor or transfer such transfer of experience from the parent company to its 
subsidiaries. Fifth, factors associated with motivation. Sixth, the factors associated 
with the business environment in the form of the characteristics of the regional 
business environment and legal framework

In the year of 2010 – 2011, many of Islamic banking Unit (UUS) decided the 
spin-off (separate themselves from the Parent Bank) to establish Islamic Banks (BUS), 
with a reason to promote Islamic banking and more independent management. 
From 11 Islamic Banks (BUS), who was born purely through the spin-off Islamic 
banking unit are BJB Syariah and BNI Syariah, while others have appeared Islamic 
banks through acquisitions, such as the Bank of Syariah Mandiri derived from the 
acquisition of Bank of Susila Bakti, Bank Mega Syariah of acquisition of Tugu Bank, 
and BCA Syariah through Bank of Jasa Artha. Moreover, the spin-off through the 
acquisition then subsequently converted, such as Bank of Syariah Bukopin. BRI 
Syariah through Bank of UIB, Victoria Bank through Swaguna Bank, Maybank 
Syariah through Maybank Indocorp. Separation initially considered beautiful, it 
was not as easy to do, there were Islamic banks that successful in the spin off, but 
there were also Islamic banks experience some setbacks in spin-offs when becoming 
Full-pledge Islamic banks.

Spin-off policies that have been implemented in 2008, are still not able 



Al-Iqtishad: Vol. VII No. 1, Januari 2015 120

to reach the target market share of 5% of the national banking assets as well as 
the phenomenon of Islamic Banks spinoff spin-offs are still not strong visible 
management of indicators financial performance displayed. Accordingly, this study 
sought to determine the impact of policy separation (spin-off) of Islamic banking 
Unit (UUS) into Islamic Banks (BUS) to third party funds in the Indonesian Islamic 
banking industry.

Literature Review

Until now there has not been a lot of theories or research found associated 
with the spin-off in Islamic banks. This is due to the spin-off of the new Islamic 
banks only first practiced in Indonesia. Therefore, theories or models of the spin-off 
will be done with the model of spin-offs are applied to industry in general.

 Nasuha (2012) done the research about the performance difference on 
Islamic banking unit that decided to spin-off, such as BNI Shariah, BRI Shariah, 
BJB Shariah, BSB and Victoria Shariah. The research is done by Wilcoxon Match 
Pairs test that saw the performance between before and after the spin-off decision 
on Islamic banking units. The variables of Islamic banks performance are asset, 
financing, third party funds, net earnings, CAR, NPF, FDR, ROA and ROE. The 
result shown that only asset, financing and third party funds that shown a difference 
between before and after spin-off policies on that five banks. Otherwise for other 
variables such as CAR, FDR, ROA and ROE shown that there were no difference 
on CAR, FDR, ROA and ROE in Islamic banks. This result might be due to the 
spin-off is new practiced in the Islamic banking industry, so the testing period was 
short on this research.

Al Arif (2014) conducted a study about the impact of spin-off policy on the 
growth of Islamic banking industry, which one the growth indicator is asset growth. 
This research uses the data on Islamic banking statistics from Bank of Indonesia 
and Financial Service Authority. The result shows that all the independent variables 
such as spin-off dummy variable, one-month time deposit, operational efficiency 
ratio (BOPO), and profitability ratio (ROA) had an impact on the asset growth on 
Islamic banking industry in Indonesia.

According Elfring and Foss (1997) there are two types of spin-off, namely: 
first, in terms of its parent company, in which the parent company for some reason 
is not able or not able to exploit the opportunities that come by. The second type is 
related to organizational units as an individual, in this second type is the type most 
widely performed, in which the subsidiary is not the same as its parent company. This 
second type contained in the spin-off of the Islamic banking units in conventional 
banks in Indonesia.



Abdul Hamid: The Impact of Spin-off Policy  121

Beeson and Hyden (2002) stated that if a lot of company done the spin-
off to increase the competitiveness of the company and create the value for the 
shareholders by focused on it primary business. Christo and Falk (2006) showed 
that the key factor of spin-off is the focused of the industry. From these result and 
we related to this research, we can stated that the spin-off decision that had been 
done by several Islamic banking unit can give a value for the parents company and 
also for the shareholders. Because the parents company can focused on his primary 
business, and the subsidiary company can focused to develop.

Chemmanur and Yan (2004) develops a new rationale for corporate spin-
offs, and for the performance and value improvements following them. The firm 
has two divisions, and current management has differing abilities for managing 
these two divisions. Spin-offs can enhance firm management. In addition, on their 
analysis demonstrates that in addition to positive abnormal stock-price return on 
the announcement day, spin-offs also lead to positive long-term abnormal stock 
returns (on average) for parent spin-offs combination reporting subsequent takeover 
activity.

Methods

To achieve the goal of this research analyzing the influence of spin-off policy 
on the profitability ratio of Indonesian Islamic banking, regression analysis is used. 
The mathematical equation proposed in this research is:

Yt = β0 + β1 Dt +  β2 X1t +  β3 X2t + β4 X3t  + ε
where:

Yt = ROA;
Dt =Dummy variable for spin-off
Which is: 0 before spin-off, 1 after spin-off;
X1t = Non-performing financing (NPF);
X2t= One-month deposit margin;
X3t = BOPO
After processing the regression analysis, to see whether the model is good 

or bad, we have to know the goodness of fit of the model. To see the goodness of 
fit of the model, we have to look at the t-statistics, F-statistics, the coefficient of 
determination (R2), as well as to cover classical assumption test heteroscedasticity, 
autocorrelation, and multicollinearity.

Decision to accept or reject Ho was made on the basis of the value of the test 
statistic obtained from the existing data. Under the normality assumption followed 
the statistical distribution of variable t with degrees of freedom N−k. A statistic is said 



Al-Iqtishad: Vol. VII No. 1, Januari 2015 122

to be statistically significant if the value of the test statistic is in the critical region. 
The aim of statistical t test is to see how big the effect of independent variables on 
the dependent variable individually.

Testing the null hypothesis is with F-statistics is necessary to test if βk = 0. The 
calculation of F-statistics performed by comparing the critical value F obtained from 
F distribution table at a certain significance level. If the null hypothesis is rejected, 
it means that the independent variables affect the dependent variable. In this case, 
the empirical treatment aims to look at the effect of independent variables on the 
dependent variable.

The coefficient of determination or R2 is a measure of goodness of fit which 
explained whether the linear regression is in line with observational data. Kennedy 
(2008) said the coefficient of determination, R2, to represent the proportion of 
the variation in the dependent variable explained by variation in the independent 
variables. If R2=1, it means perfect relationship between independent variable and 
dependent variable, otherwise R2=0 means no relationship between independent 
variable and dependent variable.

Discussion

According to data processing based on Islamic banking statistics, we get the 
equation from this model as follows:

ROA = 4.56672 + 1.44873 D_spinoff – 0.0547 NPF + 0.0021 Margin – 
0.0511 BOPO 

SE (0.5575)      (0.2434)                   (0.0424)             (0.0045)               
(0.0082)

Where:
R2  = 0.81982;
Adj.R2 = 0.80647;
F-statistic= 61.4237.
From the results obtained above, it is seen that the coefficient of the constant 

value is 4.56672, meaning that when all other variables are assumed to be zero; 
the profitability ratio will still increase every month. Then for the spin-off dummy 
coefficient, which is zero if the period time before the enforcement of spin-off policy 
and 1 if the period time after the enforcement of spin-off policy, has a positive sign. 
It means that there is a positive relationship between the spin-off policy and the 
increasing of Islamic banking profit. The value of t-test shown a significant result 
implied that there is an effect between spin-off policies based on Law of 21/2008 
about Islamic banking to the profit of Islamic banking industry in Indonesia.



Abdul Hamid: The Impact of Spin-off Policy  123

The first control variable is the ratio of NPF in Islamic banks which shown 
that t-test value is higher than the t-table value; it means that there is a relationship 
between NPF and profitability ratio that held by Islamic banks. These results 
indicate that the health of banks into one of the determinants of Islamic banking 
profits. From these result showed that the increasing of NPF in Islamic banks will 
decrease the profit in Islamic banks.

The second control variable is margin of one-month time deposit which shown 
that t-test value is lower than the t-table value; it means that there is no relationship 
between one-month time deposit margin and profitability ratio on Islamic banks. 
The third control variable is efficiency ratio that measured by BOPO. The result 
showed that there was a relationship between the BOPO ratio and profitability 
ratio on Islamic banks. These results indicate that the higher level of BOPO in 
Islamic banks, the profit will decrease. The higher level of BOPO means that the 
Islamic banks more inefficient, because the operational cost was higher rather than 
the operational income. This result relevant with the fact, that if Islamic banking is 
less efficient it will make the profit of that Islamic banks will be decrease.

To see how much this model is influenced by the existing variable, we can 
use the coefficient of determination. The value of Adj.R2 is 0.80647, explained that 
the proportion of the variation in the dependent variable explained by variation in 
the independent variables was 80.65 percent; the rest is explained by other variables 
outside of the existing models. Next, to see the simultaneous effect of all independent 
variables to dependent variable used the F-statistics test. Based on the empirical 
result shown the F-test value is 61.4237, it means that the existing variables have an 
influence on the profitability ratio contained in Islamic banking.

From this result we can conclude that spin-off policies that applied to Islamic 
banking industry in Indonesia had a good effect to increase the profit. This result 
give a some result that different by the research had done by Nasuha (2013). 
Nasuha done the research about the performance difference on Islamic banking 
unit that decided to spin-off, such as BNI Shariah, BRI Shariah, BJB Shariah, BSB 
and Victoria Shariah. The research is done by Wilcoxon Match Pairs test that saw 
the performance between before and after the spin-off decision on Islamic banking 
units. The variables of Islamic banks performance are asset, financing, third party 
funds, net earnings, CAR, NPF, FDR, ROA and ROE. The result shown that only 
asset, financing and third party funds that shown a difference between before and 
after spin-off policies on that five banks. Otherwise for other variables such as CAR, 
FDR, ROA and ROE shown that there were no difference on CAR, FDR, ROA and 
ROE in Islamic banks. This result might be due to the spin-off is new practiced in 
the Islamic banking industry, so the testing period was short on this research.



Al-Iqtishad: Vol. VII No. 1, Januari 2015 124

Beeson and Hyden (2002) stated that if a lot of company done the spin-
off to increase the competitiveness of the company and create the value for the 
shareholders by focused on it primary business. Christo and Falk (2006) showed 
that the key factor of spin-off is the focused of the industry. From these result and 
we related to this research, we can stated that the spin-off decision that had been 
done by several Islamic banking unit can give a value for the parents company and 
also for the shareholders. Because the parents company can focused on his primary 
business, and the subsidiary company can focused to develop. 

Veld and Veld Merkoulova (2002) doing the research in 156 spin-off in Europe 
since 1987 until September 2000, the result showed that there is an increasing of 
abnormal earning is about 3.57% for company that focused on its core business, 
and only 0.76% for company that not focused on its core business. Herzeca (1996) 
stated that spin-off has been successfully used to facilitate the achievement of our 
strategic objectives with as allow it to focus on its core business. Herzeca further 
argued that the spin-off has been able to effectively separate the business capital of 
the businesses that have high growth. In addition to the spin-off can eliminate the 
conflicts that exist in two different businesses.

Agarwal et.al (2004) suggested that the separation is often formed to capitalize 
on the knowledge that is created by their parent company but not exploited. This 
explains why the company better, may create more knowledge, but it may have a 
higher level of separation. This model explains the reason for separation as to develop 
knowledge of the less exploited by its parent company. This model shows how the 
separation (spin-off) provides a mechanism to compensate for ability limitation of 
companies to evaluate new ideas.

From the results obtained, then associated with several previous studies 
showed that the spin-off policy has a good influence on the development of the 
industry. This is similar to the case of the spin-off policy in the Islamic banking 
industry in Indonesia, where the spin-off policy proved to increase the growth of 
third party funds in the Islamic banking industry.

Conclusion

Spin-off policy as contained in the Law 21 in 2008 is one of the breakthroughs 
that aims to accelerate the growth of Islamic banking in Indonesia. The model 
proposed in this study uses regression with a dummy variable, as well as control 
variables in the form of internal factors such as the NPF, margin, and BOPO. 
The results showed that the dummy variable of spin-off, NPF and BOPO give a 
significant influence on the profitability ratio (measured by ROA) of Indonesian 
Islamic banking industry. But, the deposit margin doesn’t have an influence on 



Abdul Hamid: The Impact of Spin-off Policy  125

profitability ratio. So, we can conclude that the spin-off policy have a significant 
influence on profitability ratio on Indonesian Islamic banking industry.

The empirical result obtained on this study indicate that the spin-off policy 
that pursued by the central bank is right. Although there are still some policies are 
still needed by the Islamic banking industry to grown up rapidly than the growth of 
conventional banks. The results of this study also helped to support the studies of 
spin-offs that show a positive influence on the development of the company.

The model in this study still needs to be improved, because the data used in 
this study used data Indonesian Islamic banking industry in general. Therefore it is 
recommended for future research may use data derived from each Islamic banking 
unit who have decided spin-off into Islamic banks. It is intended that the analysis 
obtained more sharp and accurate in giving an overview of the effect of the spin-off 
policy towards the Islamic banking.

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