THE EFFICIENCY AND ITS DETERMINANTS OF FULLFLEDGED ISLAMIC BANKS IN INDONESIA

Abstract

By employing non-parametric approach using Data Envelopment Analysis (DEA) as a tool, this study aims to examine the efficiency of Indonesian full-fledged Islamic banks and its determinants. To realize the research objectives, this study constructed into two parts; first measuring efficiency using three assumptions: technical efficiency, pure technical efficiency and scale efficiency obtained by CCR and BCC models; then continued with the results of bank efficiency that will be regressed to find the determinant factors internal and externally. The panel data of 3 Indonesian full-fledged Islamic banks during the period of the first quarter of 2011 to the third quarter of 2017 is used. The findings reveal that Indonesian full-fledged Islamic banks operate at 97.7 percent level of overall technical efficiency. Therefore, the full-fledged Islamic banks in Indonesia are not fully efficient. Further, the findings show overall technical inefficiency is dominantly due to the inappropriate scale size of bank (SIE) rather than management underperformance (PTIE). The results of panel regression analysis show all internal and external determinants are significant toward efficiency. The ROA and LOANTA have positive significant effect toward efficiency while EQAS, Inflation Rate and BI Rate have negative significant effect toward efficiency.