THE DETERMINANTS OF BANKS’ EFFICIENCY IN INDONESIA FOR CATEGORY 3 (BUKU 3)

Abstract

This research uses two-stage analysis approach in finding the efficiency and its determinants of banks categorized in BUKU 3 (Local and Foreign). In the first stage, the researcher employs non-parametric approach using Data Envelopment Analysis (DEA) to obtain banks’ technical efficiency. In the next stage, the efficiency scores are then regressed using multiple regression analysis to find the determinant factors. To realize the objectives of this research, 10 commercial banks are involved as the sample of BUKU 3, 5 banks as the sample of local category, and 5 banks as the sample of foreign category that make a total of 240 observed samples analyzed over the first quarter of 2016 until the last quarter of 2018. The findings exhibit local and foreign banks are still not fully-efficient technically and the efficiency gap between both banks exists. Eventually, foreign banks come out as the most efficient among analyzed categories and there is no significant different statistically between the efficiency of local and foreign banks proven by using Mann-Whitney test. The results of multiple regression analysis show that EQTA, LTA, and NIM are significant towards banks’ efficiency, while LTA, NPL, and NIM are significant towards efficiency of local banks. Lastly, EQTA and LTA are significantly influence foreign banks’ efficiency.