BANKS EFFICIENCY AND THE DETERMINANTS OF NON PERFORMING FINANCING OF FULL-FLEDGED ISLAMIC BANKS IN INDONESIA

Abstract

This paper investigates the efficiency of Indonesian Full-fledged Islamic Banks by employing Data Envelopment Analysis (DEA) approach; the determinants of non-performing financing (NPF) during the period 2012(Q1) to 2016(Q2) by using Panel Least Square for fixed effect model; the inter-temporal relationships between banks efficiency and NPF are run using VAR model to test the two hypotheses: „Bad Debt‟ and „Bad Management‟. This research uses quarterly published reports data of Central Bank of Indonesia (Bank Indonesia) and Financial Service Authority of Indonesia (Otoritas Jasa Keuangan Indonesia) with 4 Islamic banks as the sample of research. The overall results show that Exchange rate, Return on Asset Ratio (ROA), Financing to Deposit Ratio (FDR), Size have a negative and significant effect on NPF, while BI rate have a positive and significant effect on NPF. The finding of DEA indicates the mean score of Full-fledged Islamic banks in Indonesia is approach to efficient with the score 96.54% and Bank Rakyat Indonesia Syariah (BRIS) is the most technical efficient. The result shows that Full-fledged Islamic banks in Indonesia is not support the „bad management‟ and „Bad Luck‟ hypothesis, probably the averagely NPF of full-fledged is 4.5 % that is still bellow of the critical standard of Bank Indonesia.