Title: The efficiency of commercial banks in Indonesia

Authors: Mohammad Abdul Matin Chowdhury; Razali Haron; M.I. Kom Sulistyowati; Md. Abdullah Al Masud

Addresses: Department of Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia ' IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia ' Marketing and Public Relations, Department of Cooperation, Marketing, and Alumni Relations, Paramadina University, Indonesia ' Department of Business Administration, International Islamic University Malaysia Kuala Lumpur, Malaysia

Abstract: The banking sector plays a very important role in economic development through stimulation of savings and investment. The main purpose of this study is to evaluate and compare the banking efficiency between public, private, and commercial banks in Indonesia. The data were collected from consolidated annual reports of 21 commercial banks for the period 2013-2018. The DEA approach was applied to identify the efficiency of all types of banks and finally compared using the technical efficiency (TE), the pure technical efficiency (PTE) and the scale efficiency (SE). The findings showed that all commercial banks are required to improve their management practices while Islamic banks are comparably better in overall technical efficiency. Finally, these findings suggest banks to improve their efficiency through utilising maximum inputs to produce higher outputs. Policy makers may consider the findings to improve monitoring and regulating the most effective and adequate policies to improve banking growth.

Keywords: bank efficiency; Islamic and conventional banks; commercial banks; data envelopment analysis; DEA; Malmquist Index; total factor productivity change; Indonesian banks; Indonesia.

DOI: 10.1504/IJEPEE.2022.121346

International Journal of Economic Policy in Emerging Economies, 2022 Vol.15 No.2/3/4, pp.280 - 302

Received: 11 May 2020
Accepted: 24 Aug 2020
Published online: 07 Mar 2022 *

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