Bank  XYZ Syariah  tends  to focus  more  on financing  activities as the primary business because it is typical for their funding customers to not use their accounts for daily transactions. As a result, business funding needs are often not a priority. Such is the case with the mobile banking product, which has not been updated since its creation in 2015.

The Covid-19 pandemic in 2020 has made the need for electronic banking services even more urgent and essential because transactions via branch offices are limited. Hence, customers have no other choice but to use mobile banking. However, the mobile banking performance is minimal because of insufficient investment and maintenance, thus making it difficult for the funding customers (both individuals and corporations) to access their accounts.

In order to solve these business issues, management instructed the bank's funding team to create internet banking products and re-engineer the current mobile banking, which is being developed and will release at the end of 2021. This research intends to assess the feasibility of the company's investment decision to develop both products for the bank's funding customers. The research will also seek to understand which financial factors will significantly impact the project's financial condition.

This study limits the research's result within a five-year time frame and under several financial assumptions, determined by the company's internal data and references from Indonesia's banking industry and economic condition. The analysis method will be based on the calculation results from the data to determine the feasibility of the project using the capital budgeting method and sensitivity analysis.

Capital Budgeting

Capital budgeting is defined in a book titled Principles of Managerial Finance chapter 10 as follows: "The process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing  owners   wealth"  [3].  These   long -  term investments are elaborated in the book titled Capital Budgeting:  Financial  Appraisal of Investment Projects chapter 

1 as "...tangible items such as property, plant or equipment or intangible ones such as new technology, patents or trademarks. Investments in processes such as research, design, development, and testing - through which new technology and new products are created - may also be viewed as investments in intangible assets" [3].

Figure 1: Research Framework

Sensitivity Analysis       

Sensitivity analysis is defined in a book titled Fundamentals of Corporate Finance Chapter 11 as follows: "Sensitivity analysis is a variation on scenario analysis that is useful in pinpointing the areas where forecasting risk is especially severe. The basic idea with sensitivity analysis is to freeze all of the variables except one and then see how sensitive our estimate of NPV is to changes in that one variable. Suppose our NPV estimate turns out to be very sensitive to relatively small changes in the projected value of some component of project cash flow. In that case, the forecasting risk associated with that variable is high [9].

Research Design

In this thesis, the quantitative approach is mainly used to assess the development of Bank XYZ Syariah's mobile and internet banking project. The primary data sources are the data projections collected from the internal company document and interviews with the management of Bank XYZ Syariah. The secondary data sources are from academic books or journals related to financial management and the internet. After obtaining the data, the next step is to calculate based on the projections. The calculations will have resulted in capital budgeting indicators for the feasibility study and the acceptable range for     each     assumption      in      the     sensitivity     analysis.

Analysis Method

There are five capital budgeting financial indicators used in this study which are:

• Net Present Value: The net present value (NPV) is found by subtracting a project’s initial investment from the present value of its cash inflows discounted at a rate equal to the firm’s cost of capital [3]

• Internal Rate of Return: The internal rate of return (IRR) is the discount rate that equates the NPV of an investment opportunity with $0 (because the present value of cash inflows equals the initial investment). It is the rate of return that the firm will earn if it invests in the project and receives the given cash inflows [3]

• Payback Period: The payback period is the amount of time required for a firm to recover its initial investment in a project as calculated from cash inflows. Although popular, the payback period is generally viewed as an unsophisticated capital budgeting technique because it does not explicitly consider the time value of money [3]

• Discounted Payback Period: One of the shortcomings of the payback period rule was that it ignored time value. The discounted payback period is a variation of the payback period that fixes this particular problem. It is the length of time until the sum of the discounted cash flows is equal to the initial investment [9]

• Profitability Index: The present value of an investment’s future cash flows divided by its initial cost [9]

As for the sensitivity analysis result, the study compares the pre-established hypothetical value with the hypothetical value of zero NPV. This study will calculate the size between the two values and shows it as a percentage. A small percentage of change indicates that the particular indicator is very sensitive, with small movements able to reduce NPV to zero or even negative.

This study will limit the revenue estimates based on two income   sources:   financing   margin  income  and treasury

Table 1: Feasibility Study Result 

Table 2: Sensitivity Analysis Result

The net present value (NPV) of Bank XYZ Syariah's mobile and internet banking project returns positive at Rp105,519,881,036, indicating that the project is feasible because the projected cash inflow is more than the projected cash outflow in the next five years. The calculation already includes the concept of the time value of money with a 14.18% discount rate. The internal rate of return (IRR) of Bank XYZ Syariah's mobile and internet banking project is 76.74%, far exceeding the project's 14.18% weighted average cost of capital. This calculation also indicates that the project's likelihood to be profitable is likely.

Based on the payback period indicator, the project is expected to achieve the breakeven point in 3 years and 28 days from the start of the investment period. By that time, the project will recover the investment value from the cash inflows potentially generated from the project. As for the discounted payback period indicator, the breakeven point of the project takes a bit longer in 3 years, two months, and 26 days from the start of the investment period. By that time, the project will recover the investment value from the cash inflows potentially generated from the project after considering the time value of money (TVM) concept.

Based on the profitability index ratio of the project, for every rupiah spent on the project, the potential return on investment is evaluated to be around 8.62 times. Since the ratio is greater than 1, the project is estimated to be profitable and should proceed. From the net profit margin indicators, the project shows negative results in the first two years after the project is launched at -22.81% and -8.02%, but will regain the positive result starting from the third year onwards at 11.24%, 18.25%, and 20.23%.

The sensitivity analysis shows that the most sensitive expense to the project is the BOPO ratio (Beban Operasional terhadap Pendapatan Operasional). This ratio is the most dominant expense, taking around 64.15% of the gross revenue. The ratio should not exceed 81.17%, which will reduce the project's NPV to negative. The current 51% effective margin rate is the second most sensitive metric to the project, as it will determine the revenue generated from the outstanding that the bank manages. Based on the sensitivity analysis, this indicator cannot go lower than 21.00%, which will reduce the project's NPV to negative.

The bank has to set the target to have an average balance of at least Rp20,065,126 from potential new customers as this is the third most sensitive indicator to the project. If the average balance from new customers is less than that, the project’s NPV might turn negative. The fourth most sensitive indicator is the financing-to-deposit ratio (FDR) which currently hovers at around 97%. It means that 97% of the outstanding will be distributed to financing activities. The change in FDR cannot go lower than 33.58%, in which the project's NPV will return negative.

To sum up, the mobile and internet banking project of Bank XYZ Syariah is feasible and predicted to be profitable under several assumptions established. The project should stay feasible if the BOPO ratio, effective margin rate, average balance from the new customers, and financing-to-deposit ratio stay within a specific range, as it will maintain the positive NPV result. Overall, the project is worth the investment because of the potential high profitability for the company in the long run.

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