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Abstract
Islamic banking, as the relatively new player in financial services, also take parts as contributor to the growth of Indonesian economy along with the conventional one. The main purpose of this research is to analyze the efficiency of Islamic and Conventional banking in Indonesia. This research used non-parametric frontier approach, Data Envelopment Analysis (DEA), to examine the efficiency in Islamic and Conventional banks in Indonesia. It is focused on measuring technical efficiency (TE), pure technical efficiency (PTE) and scale efficiency (SE) of Islamic and Conventional banking. The finding reveals that both of Islamic and Conventional banks are relatively high on scale efficiency. On the other hand, technical is found as the least contributor to gain efficiency for banks after pure technical efficiency level. Therefore, it is suggested to bank, to manage the resources maximally, utilize information technology optimally and operate at optimum operation scale.
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Copyright (c) 2022 Faiza Husnayeni Nahar, Mufti Alam Adha, Rofiul Wahyudi
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References
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- Ascarya, & Yumanita, D. (2006). Analisis efisiensi Perbankan Syariah di Indonesia dengan Data Envelopment Analysis. TAZKIA Islamic Finance and Business Review, 1(2), 101–124.
- Bank Syariah Mandiri. (2013). Laporan Tahunan 2013. https://www.mandirisyariah.co.id/assets/pdf/annual-report/AR-BSM-2013-Lap-Manajemen.pdf
- Banker, R. D., & Morey, R. C. (1986). The Use of Categorical Variables in Data Envelopment Analysis. Management Science, 32(12), 1613–1627. https://doi.org/https://doi.org/10.1287/mnsc.32.12.1613
- Barros, C. P. (2005). Measuring efficiency in the hotel sector. Annals of Tourism Research, 32(2), 456–477. https://doi.org/10.1016/j.annals.2004.07.011
- Botti, L., Briec, W., & Cliquet, G. (2009). Plural forms versus franchise and company-owned systems: A DEA approach of hotel chain performance. Omega, 37(3), 566–578. https://doi.org/10.1016/j.omega.2007.12.002
- Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European Journal of Operational Research, 2(6), 429–444. https://doi.org/10.1016/0377-2217(78)90138-8
- Drake, L., & Hall, M. J. B. (2003). Efficiency in Japanese banking: An empirical analysis. Journal of Banking and Finance, 27(5), 891–917. https://doi.org/10.1016/S0378-4266(02)00240-6
- Drake, L., Hall, M. J. B., & Simper, R. (2005). The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong’s banking system. Journal of Banking and Finance, 30(5), 1443–1466. https://doi.org/10.1016/j.jbankfin.2005.03.022
- Fakhrunnas, F., Nahar, F. H., & Albana, H. F. (2018). Effects of Macroeconomics Factors toward Efficiency in Banking. JEJAK: Jurnal Ekonomi Dan Kebijakan, 11(2), 390–400. https://doi.org/10.15294/jejak.v11i2.16059
- Farrell, M. J. (1957). The Measurement of Pruductivite Efficiency. In Journal of the Royal Statistical Society (Vol. 120, Issue 3, pp. 253–290). http://www.aae.wisc.edu/aae741/Ref/Farrell 1957.pdf
- Hadad, M. D., Santoso, W., Mardanugraha, E., & Ilyas, D. (2003). Pendekatan Parametrik Untuk Efisiensi Perbankan Indonesia. Bank Indonesia, 1–26.
- Haris, J., Ozgen, H., & Ozcan, Y. (2000). Do mergers enhance the performance of hospital efficiency? Journal of the Operational Research Society, 51(7), 801–811.
- Ismail, F., Shabri Abd. Majid, M., & Rahim, R. A. (2013). Efficiency of Islamic and conventional banks in Malaysia. Journal of Financial Reporting and Accounting, 11(1), 92–107. https://doi.org/10.1108/JFRA-03-2013-0011
- Lozano-Vivas, A., Pastor, J. T., & Hasan, I. (2001). European Bank Performance Beyond Country Borders: What Really Matters? European Finance Review, 5(1–2), 141–165. https://doi.org/10.1023/a:1012742232030
- Mostafa, M. M. (2011). Modeling Islamic banks’ efficiency: a non‐parametric frontier approach. International Journal of Islamic and Middle Eastern Finance and Management, 4(1), 7–29. https://doi.org/10.1108/17538391111122186
- Nahar, F. H., & Prawoto, N. (2017). Bank’s Profitability In Indonesia : Case Study Of Islamic Banks Period 2008-2012. Jurnal Ekonomi & Studi Pembangunan, 18(2), 164–172.
- Najib, M. I. A., & Iskandar, D. D. (2022). Efficiency Analysis of Sharia Commercial Banks (BUS) In Indonesia During 2015 – 2019. Journal of Islamic Economics, 4(1), 1–11.
- OJK. (2020). Sharia Banking Statistics. In Statistik Perbankan Syariah: Vol. (Issue). -
- Popović, M., Savić, G., Kuzmanović, M., & Martić, M. (2020). Using data envelopment analysis and multi-criteria decision-making methods to evaluate teacher performance in higher education. Symmetry, 12(4), 1–19. https://doi.org/10.3390/SYM12040563
- Prior, D., & Solà, M. (2000). Technical efficiency and economies of diversification in health care. Health Care Management Science, 3(4), 299–307. https://doi.org/10.1023/A:1019070113893
- Salman, A., & Nawaz, H. (2018). Islamic financial system and conventional banking: A comparison. Arab Economic and Business Journal, 13(2), 155–167. https://doi.org/10.1016/j.aebj.2018.09.003
- Sharma, D., Sharma, A. K., & Barua, M. K. (2013). Efficiency and productivity of banking sector. Qualitative Research in Financial Markets, 5(2), 195–224. https://doi.org/10.1108/QRFM-10-2011-0025
- Sufian, F., Noor, M. A. M., & Abdul-Majid, M. Z. (2008). The efficiency of Islamic banks: Empirical evidence from the MENA and Asian countries Islamic banking sectors. Middle East Business and Economic Review, 20(1), 1–19. https://doi.org/10.1108/17538390910965149
- Sufian, F., & Shah Habibullah, M. (2010). Developments in the efficiency of the Thailand banking sector: a DEA approach. International Journal of Development Issues, 9(3), 226–245. https://doi.org/10.1108/14468951011073316
- Taib, C. A., Ashraf, M. S., & Razimi, M. S. B. A. (2018). Technical, pure technical and scale efficiency: A non-parametric approach of Pakistan’s insurance and takaful industry. Academy of Accounting and Financial Studies Journal, 22(Specialissue), 1–11.
- Yahya, M. H., Muhammad, J., & Hadi, A. R. A. (2012). International Journal of Islamic and Middle Eastern Finance and Management Article information : International Journal of Islamic and Middle Eastern Finance and Management, 5(1), 48–62. https://doi.org/10.1108/IMEFM-07-2014-0063
References
Alam, N. (2013). Impact of banking regulation on risk and efficiency in Islamic banking. Journal of Financial Reporting and Accounting, 11(1), 29–50. https://doi.org/10.1108/JFRA-03-2013-0010
Ascarya, & Yumanita, D. (2006). Analisis efisiensi Perbankan Syariah di Indonesia dengan Data Envelopment Analysis. TAZKIA Islamic Finance and Business Review, 1(2), 101–124.
Bank Syariah Mandiri. (2013). Laporan Tahunan 2013. https://www.mandirisyariah.co.id/assets/pdf/annual-report/AR-BSM-2013-Lap-Manajemen.pdf
Banker, R. D., & Morey, R. C. (1986). The Use of Categorical Variables in Data Envelopment Analysis. Management Science, 32(12), 1613–1627. https://doi.org/https://doi.org/10.1287/mnsc.32.12.1613
Barros, C. P. (2005). Measuring efficiency in the hotel sector. Annals of Tourism Research, 32(2), 456–477. https://doi.org/10.1016/j.annals.2004.07.011
Botti, L., Briec, W., & Cliquet, G. (2009). Plural forms versus franchise and company-owned systems: A DEA approach of hotel chain performance. Omega, 37(3), 566–578. https://doi.org/10.1016/j.omega.2007.12.002
Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European Journal of Operational Research, 2(6), 429–444. https://doi.org/10.1016/0377-2217(78)90138-8
Drake, L., & Hall, M. J. B. (2003). Efficiency in Japanese banking: An empirical analysis. Journal of Banking and Finance, 27(5), 891–917. https://doi.org/10.1016/S0378-4266(02)00240-6
Drake, L., Hall, M. J. B., & Simper, R. (2005). The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong’s banking system. Journal of Banking and Finance, 30(5), 1443–1466. https://doi.org/10.1016/j.jbankfin.2005.03.022
Fakhrunnas, F., Nahar, F. H., & Albana, H. F. (2018). Effects of Macroeconomics Factors toward Efficiency in Banking. JEJAK: Jurnal Ekonomi Dan Kebijakan, 11(2), 390–400. https://doi.org/10.15294/jejak.v11i2.16059
Farrell, M. J. (1957). The Measurement of Pruductivite Efficiency. In Journal of the Royal Statistical Society (Vol. 120, Issue 3, pp. 253–290). http://www.aae.wisc.edu/aae741/Ref/Farrell 1957.pdf
Hadad, M. D., Santoso, W., Mardanugraha, E., & Ilyas, D. (2003). Pendekatan Parametrik Untuk Efisiensi Perbankan Indonesia. Bank Indonesia, 1–26.
Haris, J., Ozgen, H., & Ozcan, Y. (2000). Do mergers enhance the performance of hospital efficiency? Journal of the Operational Research Society, 51(7), 801–811.
Ismail, F., Shabri Abd. Majid, M., & Rahim, R. A. (2013). Efficiency of Islamic and conventional banks in Malaysia. Journal of Financial Reporting and Accounting, 11(1), 92–107. https://doi.org/10.1108/JFRA-03-2013-0011
Lozano-Vivas, A., Pastor, J. T., & Hasan, I. (2001). European Bank Performance Beyond Country Borders: What Really Matters? European Finance Review, 5(1–2), 141–165. https://doi.org/10.1023/a:1012742232030
Mostafa, M. M. (2011). Modeling Islamic banks’ efficiency: a non‐parametric frontier approach. International Journal of Islamic and Middle Eastern Finance and Management, 4(1), 7–29. https://doi.org/10.1108/17538391111122186
Nahar, F. H., & Prawoto, N. (2017). Bank’s Profitability In Indonesia : Case Study Of Islamic Banks Period 2008-2012. Jurnal Ekonomi & Studi Pembangunan, 18(2), 164–172.
Najib, M. I. A., & Iskandar, D. D. (2022). Efficiency Analysis of Sharia Commercial Banks (BUS) In Indonesia During 2015 – 2019. Journal of Islamic Economics, 4(1), 1–11.
OJK. (2020). Sharia Banking Statistics. In Statistik Perbankan Syariah: Vol. (Issue). -
Popović, M., Savić, G., Kuzmanović, M., & Martić, M. (2020). Using data envelopment analysis and multi-criteria decision-making methods to evaluate teacher performance in higher education. Symmetry, 12(4), 1–19. https://doi.org/10.3390/SYM12040563
Prior, D., & Solà, M. (2000). Technical efficiency and economies of diversification in health care. Health Care Management Science, 3(4), 299–307. https://doi.org/10.1023/A:1019070113893
Salman, A., & Nawaz, H. (2018). Islamic financial system and conventional banking: A comparison. Arab Economic and Business Journal, 13(2), 155–167. https://doi.org/10.1016/j.aebj.2018.09.003
Sharma, D., Sharma, A. K., & Barua, M. K. (2013). Efficiency and productivity of banking sector. Qualitative Research in Financial Markets, 5(2), 195–224. https://doi.org/10.1108/QRFM-10-2011-0025
Sufian, F., Noor, M. A. M., & Abdul-Majid, M. Z. (2008). The efficiency of Islamic banks: Empirical evidence from the MENA and Asian countries Islamic banking sectors. Middle East Business and Economic Review, 20(1), 1–19. https://doi.org/10.1108/17538390910965149
Sufian, F., & Shah Habibullah, M. (2010). Developments in the efficiency of the Thailand banking sector: a DEA approach. International Journal of Development Issues, 9(3), 226–245. https://doi.org/10.1108/14468951011073316
Taib, C. A., Ashraf, M. S., & Razimi, M. S. B. A. (2018). Technical, pure technical and scale efficiency: A non-parametric approach of Pakistan’s insurance and takaful industry. Academy of Accounting and Financial Studies Journal, 22(Specialissue), 1–11.
Yahya, M. H., Muhammad, J., & Hadi, A. R. A. (2012). International Journal of Islamic and Middle Eastern Finance and Management Article information : International Journal of Islamic and Middle Eastern Finance and Management, 5(1), 48–62. https://doi.org/10.1108/IMEFM-07-2014-0063