Islamic and conventional bank deposits: what drives Islamic deposit movement? A trade-off between religiosity and rationality

Purpose This study aims to examine the behavioral characteristics of depositors at Islamic banks (IB) operating within a dual banking system. The authors estimate the reaction of these cohorts to fluctuations in profit sharing and interest rates by classifying depositors as deposit type and deposit holder type. Design/methodology/approach This study uses the autoregressive distributed lag (ARDL) approach to empirically examine depositor behavior by analyzing a monthly data set in Indonesia from January 2015 to December 2021. Findings The results indicate that both conventional and Islamic bank depositors react to fluctuations in interest rates. According to the analysis, Islamic bank depositors are more receptive when the proportion of their savings in short-term deposits is increased. When interest rates increase, Islamic bank depositors encounter a higher opportunity cost. This prompts them to withdraw their funds quickly. Practical implications This research can guide Sharia banking and regulators in maintaining the performance of Sharia banks. Originality/value To the best of the authors’ knowledge, this paper is the first to attempt to analyze depositor behavior by categorizing types of deposits and their owners, as well as examining depositor sensitivity to profit-sharing and interest rates in the Indonesian Islamic banks industry.