Title: Evolution in the efficiency of the Indonesian banking sector: a DEA approach

Authors: Fadzlan Sufian

Addresses: Khazanah Research and Investment Strategy, Khazanah Nasional Berhad, Level 35, Tower 2, Petronas Twin Towers, Kuala Lumpur City Centre, 50088 Kuala Lumpur, Malaysia; Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, Serdang, 43400 Selangor, Malaysia

Abstract: The paper provides empirical evidence on the evolution of the Indonesian banking sector|s efficiency during the post Asian financial crisis period of 1999-2008. The efficiency estimates of individual banks are evaluated by using the data envelopment analysis (DEA) approach. The estimates of technical efficiency (TE) were observed to be consistently higher under intermediation approach vis-a-vis revenue approach. The empirical findings suggest that under the intermediation approach, the Indonesian banking sector|s inefficiency stems largely from pure technical rather than scale, while scale inefficiency seem to outweigh pure technical inefficiency under the revenue approach.

Keywords: bank efficiency; data envelopment analysis; DEA; Indonesia; banking industry; technical efficiency; intermediation; scale efficiency; revenue.

DOI: 10.1504/IJAMS.2010.036593

International Journal of Applied Management Science, 2010 Vol.2 No.4, pp.388 - 414

Published online: 04 Nov 2010 *

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