Indonesia Islamic Banking Readiness in Facing the ASEAN Economic Community, in Terms of Islamic Banking Disclosure and Performance Indices

This research is aimed to analyze the level of openness of Indonesia Islamic Banking which is viewed from Islamic Banking Disclosure Index based on Sharia Compliance Indicator, Corporate Governance Indicator and Social/Environment Indicator. This research is used the quantitative and qualitative methods. The use of a quantitative method in this research looks at the evaluation of Islamic Banking Performance Index, and the use of the qualitative method in this research looks at the evaluation of Islamic Banking Disclosure Index. The result of research showed Islamic Banking Disclosure Index of Indonesia Islamic Banking higher than ASEAN Islamic Banking. The average of Islamic Banking Disclosure Index of Indonesia Islamic Banking has amounted 82.71%, higher than ASEAN that is amounted 52.40%. Based on the analysis of Islamic Banking Disclosure Index is concluded that Indonesia Islamic Banking more open to revealing the information/publication related to Sharia Compliance Indicator, Corporate Governance Indicator and Social/Environment Indicator and Islamic Banking Performance Index.


Introduction
ASEAN Economic Community (AEC) is the embodiment of agreement in an economic integrated model at ASEAN region, which was proclaimed at the 9th ASEAN Summit in Bali, Indonesia in 2003(Ministry of Trade, 2007). If Indonesia is not able to keep the existence in AEC, it will be the loss of opportunities, especially in the economic area (Ekawati, 2014: 1). With the enactment of the AEC industry is no exception then all of the financial industry, particularly Islamic banking to compete in the AEC market.
Most people are concerned about the presence of AEC as a threat because the potential domestic market will be taken by other countries. This fear is not groundless if we will be able to demonstrate the highest competitiveness. Is Indonesia Islamic Banking ready to facing ACE? This thing is a major focus in this research.

Research Question
1) How is the openness level of Indonesia Islamic Banking that viewed in Islamic Banking Disclosure Index period 2012-2017? 2) How is the openness level of Indonesia Islamic Banking that viewed in Islamic Banking Performance Index period 2012-2017? 3) How is the propose of policies to a regulator, OJK and/ or BI and/ or Islamic Bank in Indonesia related to the readiness Indonesia Islamic Banking to facing AEC, particularly in terms of disclosure and performance?

Literature Review
In line with the world Islamic Banking development, the development of an index to measure/ determine the financial performance of Islamic Banking to be very important part, especially to determine how far the success level of these financial institutions to reach the target that had stated before, but it is also unless important, namely whether the Islamic financial institution complies with Islamic law (sharia compliance).
Disclosure Index is an index that used to check/ reveal how well or clear an Islamic Financial Institution reveal information that used to stakeholders. Disclosure Index is divided into 3 (three) main indicator in valuation, namely Sharia Compliance Indicator, Corporate Governance Indicator, and Environment/ Social Indicator. Performance Index used in this research is named Islamic Banking Performance Index. Islamic Banking Performance Index is an index to evaluate the performance of the Islamic Bank of 2 (two) sides namely financial performance and Islamic performance.
To measure and/ or get the value of Islamic Banking Disclosure Index is used the checklist method of disclosure that will be researched, include Sharia Compliance, Corporate Governance, dan Social/ environmental. Meanwhile, to measure and/ or evaluate Islamic Banking Performance Index has used ratio method. The ration that will measure/ evaluate in Islamic Banking Performance Index consist of the common ratio, namely profitability indicator, asset quality indicator, efficiency indicator, liquidity indicator, and risk and solvability indicator as well as a financial ratio to look sharia compliance which is called Islamic Performance Index.

Research Technique
The research technique in this research is explorative technique. This is because the researchers have conducted development to the previous research. The development is conducted include Disclosure Index and Performance Index.

Research Instrument
Islamic Banking Disclosure Index is the mean (average value) All of each indicator that becomes part of the establishment Islamic Banking Disclosure Index, namely sharia compliance indicator, corporate governance indicator and social/ environment indicator. By averaging the three indicators is forming the index and it will show how the projection is generally related to the disclosure in Islamic Bank that become the object of this research.

Research Object
1) Islamic Bank which is a stand-alone corporation in all ASEAN countries.
2) Islamic Bank has published Annual Financial Statement (annual report) and Good Corporate Governance Report until 2017.
3) Islamic Bank as mentioned in point 1 and 2 has total assets in 2017 ≥ average total asset of 3 (three) Islamic Bank in Indonesia in term of their assets.

Data Collection Method
The data that used in this research is secondary data from Annual Financial Statement (annual reports), Good Corporate Governance Report from each of ASEAN Islamic Bank during the research period. The research data was processed and evaluated to provide Islamic Banking Disclosure Index and Islamic Banking Performance Index. The development of Islamic Banking which is relatively fast that not followed with their market share, where an actual value in Islamic Banking market share in 2017 has amounted 4.58% (Buchori, 2013:5). The value of Islamic Banking market share is the lowest than conventional banking market share which is amounted 95.42%. Estimated at 5.25% to 6.25% (Siregar, 2013:12), still in the lowest composition than conventional banking market share.

Islamic Banking Analysis
Indonesia is the country with the largest population (40.6%) and the largest land area (41.9%). The country with the smallest population in Brunei Darussalam and the smallest land area in Singapore.
The formation of AEC is also bringing major implications for Indonesia Islamic Banking. But, unlike conventional banking, where with AEC bring the huge market to the conventional banking, for Islamic Banking which is bringing a little market share. Among the ASEAN countries, only Malaysia, Singapore, and Brunei Darussalam which has a potential market in sharia products and services. But because the population of these countries is lower, the market is very limited. Thus, opportunities for Indonesia Islamic Banking with the implementation of AEC is not too much (Directorate of Islamic Banking BI, 2012:76). 1) Based on the above table, it is known Indonesia Islamic Banking rank relatively higher than ASEAN Islamic Banking. Where Indonesia Islamic Banking was ranked the best position than the others Islamic Bank in ASEAN.

Islamic Banking Disclosure Index
2) The ranking of Islamic Banking Disclosure Index which projected in Table 3 is indicating during period 2012-2017, Indonesia Islamic Banking is more open and more complete in the reveal of disclosure that is required in the formation of Islamic Banking Disclosure Index which consists of Sharia Compliance, Corporate Governance, and social / Environment Indicator.
3) The fulfillment of disclosure is relatively affecting the formation of public trust. The implications of public trust are expected in line with the increasing of sharia market share.
4) Based on the research that has been done before, it is known that the right and accordance disclosure to the principles of Islamic law will affect the market share and/ or the level of public trust to Islamic Bank. As the result of research that was conducted by Ariani (2007:58) in thesis research which titled "Public Perception to Islamic Bank in Medan", which is stated services and professionalism of Islamic Bank (sharia compliance) only brought influence 23.3% to respondents perception to Islamic Bank in Medan. This is certainly indicated the level of public trust in Islamic Bank that has an important function.

Islamic Banking Performance Index
Islamic Banking Performance Index is formed by several indicators that have different on their valuation, so the valuation of Islamic Banking Performance Index is not accumulated.

1) Profitability Indicator
Performance of Indonesia Islamic Banking is relatively good enough in profitability indicator. This is showed at ROA and ROE which are relatively high, where BSM is ranked top 3 for both indicators. However, Price Earning Ratio (PER) of Indonesia Islamic Banking is relatively lower than ASEAN Islamic Banking. This is triggered higher in Operational Expenses to Operational Incomes at Indonesia Islamic Banking (>70%).

2) Asset quality indicator
Based on this indicator, asset quality in Indonesia Islamic Banking is relatively not good enough compared than the other ASEAN Islamic Banking. There are not Indonesia Islamic Banking that has in the top 3 best asset quality. This is also because relatively small of a total asset in Islamic Bank in Indonesia.

3) Efficiency indicator
The level of efficiency and performance of the Islamic Bank in Indonesia is relatively good. Where BSM is in top 3 (three). However, the implementation activities in the Islamic Bank in Indonesia is not good enough than the others Bank in ASEAN. This is most likely triggered that still relatively higher in operational expenses in Indonesia than ASEAN. From the liquidity indicator, Indonesia Islamic Banking is relatively good, where the Indonesia Islamic Banking is in top 4 (four) biggest in liquidity valuation. Where the Islamic Bank has relatively good ability to cover their short-term liabilities, especially if there are liquidity problems that might occur.

5) Risk and solvability indicator
In the assessment of this indicator, there are no Islamic banks in Indonesia who are in position three (3) large. That is, the ability of Islamic banks in Indonesia is still relatively low compared to other ASEAN banks to repay the entire debt that is using all its assets if insolvent. It is considered appropriate that Islamic banking assets in other ASEAN larger and more developed than the Islamic banking in Indonesia in general.

6) Islamic performance indicator
Based on the valuation of Islamic Performance indicator, Islamic Bank in Indonesia is relatively good. Where 3 (three) Islamic Banks in Indonesia that become research object is the Bank who had given proportional intensity to sharia compliance. This is most likely due to fairly strict Sharia compliance which regulated in Indonesia compared than ASEAN countries. And for sure, this is become one positive point to running Indonesia Islamic Banking.

Policies Analysis in Facing AEC
On step has been carried out by Malaysia in facing the competition in the banking sector at AEC was merged 3 (three) banks, namely CIMB Group, RHB Capital and Malaysia Building Society. This merger process has added 1 (one) the largest bank in Southeast Asia with potential total asset amounted Rp. 2,300 trillion (US$ 24 billion). Currently, the Bank in Indonesia that has the biggest total asset is PT. Bank Central Asia Tbk. (BCA), with the range value of their total asset amounted US$ 24 billion (Gunadi, 2014). If compared with the biggest Indonesia Islamic Bank in a total asset which is Bank Mandiri Sharia with total asset US$ 5.3 billion, assets of Islamic Bank in Indonesia is too small than a conventional bank in Indonesia.
Answering this challenge, Deputy Governor of Bank Indonesia, Halim Alamsyah said the establishment of Islamic state bank stand-alone as a strategic step, in line with the liberalization of the banking sector in the implementation of AEC. The most realistic way is to merge 4 (four) Islamic Banks state-owned namely Bank Mandiri Sharia (BSM), Bank Rakyat Indonesia Sharia (BRIS), Bank Negara Indonesia Sharia (BNI Sharia) and Sharia Business Unit Bank Tabungan Negara (BTN-Sharia) (Fatkhul, 2013). Indupurnahayu (2007) said in a research paper entitled "Banking Merger Implementation in Indonesia, Could be done the Stability and Efficiency? Some of the benefits of bank mergers, among others: 1) To make the strengthening of capital structure. If two or more inter-bank merger, it will increase they are strengthening of capital structure which reflected in the capital adequacy ratio (CAR) improvement.
2) With the strong capital structure, the competitiveness of post-merger bank will be increased so it will make better positioning of this bank.
3) The post-merger bank will be able to expand their market segmentation that followed by expansion of the type and variety of products and banking services.
4) The merger of national banks indirectly could avoid the capital increase, thus preclude the opportunities to foreign investors and control of national banks by foreign capital. 5) From the government side, it would receive more income from taxes and dividends as well as cash, when the post-merger bank divested.
Based on the above presentation, the idea to implement the merger of Islamic Bank that state-owned is relevant to conduct immediately, also based on the financial condition of these banks which is evaluated really good. This idea of accordance with the research of Putra (2013:16) which entitled "By looking at the financial ratios of the merge conventional bank, would this activity succeed?", it is compared financial condition of Bank Mandiri (merged in 1999), Bank Danamon (merged in 2000), and Bank Permata (merged in 2002), by taking 1 year time before and after the merger process and financial crisis in 2008, the result of research are among others: 1) Based on the percentage of financial ratios (liquidity ratio, solvability ratio, and profitability ratio) of Bank is known relatively smaller than before the merger.
2) Based on the percentage of financial ratios (liquidity ratio, solvability ratio, and profitability ratio) of Bank is known to survive well from the financial crisis 2008.
3) The merger process was conducted to Bank Mandiri (in 1999), Bank Danamon (in 2000), and Bank Permata (in 2002) which gave the significant changes to an improvement of banks financial performances. g) Based on analyzing Islamic Banking Disclosure and Performance Indices, that are concluded Indonesia Islamic Banking ready to facing the regional competition to ASEAN Islamic Banking on AEC.
h) The merger to establish the Islamic Banking state-owned is need to implement immediately because this will increase significantly the quality of performance of Islamic Bank in Indonesia, and expected to survive the regional and/ or global competition.

Recommendation to Indonesia Islamic Banking
a) There are need more encouragement and improvement to increase the Islamic Banking market share. But, this needs more time to adapt corporate culture, IT system, human resources, and others of 4 (four) banks.
b) Besides the government, there are also need the contribution of shareholders to accelerate the consolidation process/ merger. Because this will improve directly the efficiency of the Bank's operational activities and productivities.
c) It is going to do to make Indonesia Islamic Banking survive in AEC.

Recommendation to the Further Research
a) It is recommended to conduct further research after implementing of AEC. The further research should be done on all Islamic Banking in ASEAN.
b) For the further research, it is needed to add more variable (except disclosure and performance) in order to analyze the readiness of Indonesia Islamic Banking to facing AEC. c) When the merger has been carried out, further research to determine changes in the financial ratios of Islamic banks and/or conventional banks are converted into Islamic banks are advised to do.