EFFICIENCY AND DETERMINANTS OF CONVENTIONAL AND ISLAMIC BANKS’ PROFITABILITY IN INDONESIA

Abstract

The intended aim of study is to determine the effect of bank specific factors on profitability of Conventional and Islamic Banks in Indonesia during the period of 2010 to 2014. Return on assets (ROA) used as dependent variable. Capital Adequacy Ratio (CAR), Loan/Financing to Deposit Ratio (L/FDR), Operational Efficiency Ratio (OER), and Non Performing Loan/Financing (NPL/F) are utilized as Independent Variables. By employing descriptive statistics, correlation and regression analysis, researcher conclude that Capital Adequacy Ratio and Financing to Deposit Ratio has positive significant impact on ROA. While, Operational Efficiency Ratio and Non Performing Financing has negative significant impact on ROA. This study also determine efficiency of both banks. The measurement was done using non parametric approach with Data Envolepment Analysis (DEA). Input variables used in the study are staff costs, fixed assets, and total deposit, while the output variables are total loans/total financing, other income and liquid assets. These Efficiency value are measured through Constant Return to Scale (CRS) and Variable Return to Scale (VRS). The result of this research showed that is significant difference between CRS and VRS value in the conventional and Islamic banks since the asymptotic value is less than α measured through Kruskal-Wallis test. By using time series and cross-section data, this study take 6 samples of conventional banks and 3 Islamic banks in Indonesia.