The Efficiency of Indonesian Islamic Rural Banks: A Stochastic Frontier Analysis

Dian Agustina, Mahfud Sholihin, Annisa Fithria

Abstract


Banking plays an important role in economy acting as an intermediation institution and funding sources for business. When a bank is inefficient in the use of cost, there will be improperly used input, hindering the bank to realize its roles, functions, and objectives. Therefore, analysis of bank efficiency is strongly required. This study aims to measure and analyze the technical efficiency of Indonesian Islamic rural banks by using balanced panel data of Indonesian Islamic rural banksfromquartile I 2011 to quartile IV 2016. The sample includes 58 Islamic rural banks with total 1,392 observations. By using stochastic frontier analysis,the result shows that the average technical efficiency of IndonesianIslamic rural banksreached 86 percent and there are still 14 percent that can be optimized. Overall, the average efficiency of Indonesian Islamic rural banksincreases over the research period. In addition, this study also finds that big banks are more efficient than small banks.


Keywords


Islamic rural bank, technical efficiency, stochastic frontier analysis, panel data.

Full Text:

PDF

References


Aiello, F., & Bonanno, G. (2016). Bank efficiency and local market conditions: Evidence from Italy. Journal of Economics and Business, 83, 70–90. https://doi.org/10.1016/j.jeconbus.2015.09.002

Aigner, D., Lovell, C.A.K., & Schmidt, P. (1977). Formulation and Estimation of Stochastic Frontier Production Function Models. Journal of Econometrics, 6, 21–37. https://doi.org/10.1016/0304-4076(77)90052-5

Aysan, A.F., Karakaya, M.M., & Uyanik, M. (2011). Panel Stochastic Frontier Analysis of Profitability and Efficiency of Turkish Banking Sector in the Post Crisis Era. Journal of Business Economics and Management, 12(4), 629–654. https://doi.org/10.3846/16111699.2011.599411

Battese, G.E., & Coelli, T.J. (1992). Frontier Production Functions, Technical Efficiency and Panel Data: With Application to Paddy Farmers in India. Journal of Productivity Analysis, 3, 153–169.

Benston, G.J., Hanweck, G. A., & Humphrey, D.B. (1982). Scale Economies in Banking: A Restructuring and Reassessment. Journal of Money, Credit and Banking, 14(4), 435–456.

Berger, A.N., & Humphrey, D.B. (1997). Efficiency of Financial Institutions: International Survey and Directions for Future Research.

Bhattacharyya, A.,& Pal, S. (2013). Financial reforms and technical efficiency in Indian commercial banking: A generalized stochastic frontier analysis. Review of Financial Economics, 22(3), 109–117. https://doi.org/10.1016/j.rfe.2013.04.002

Bokpin, G.A. (2013). Ownership structure, corporate governance and bank efficiency: an empirical analysis of panel data from the banking industry in Ghana. Corporate Governance: The International Journal of Business in Society, 13(3), 274–287. https://doi.org/10.1108/CG-05-2010-0041

De, P.K. (2004). Technical Efficiency, Ownership, And Reforms: An Econometric Study of Indian Banking Industry. Indian Economic Review, 39(1), 261–294.

Farrel, M. J. (1957). The Measurement of Productive Efficiency. Journal of the Royal Statistical Society, 120(3), 253–290.

Fase, M.M.G., & Abma, R.C.N. (2003). Financial environment and economic growth in selected Asian countries. Journal of Asian Economics, 14(1), 11–21. https://doi.org/10.1016/S1049-0078(02)00237-3

Hadad, M.D., Santoso, W., Mardanugraha, E., & Illyas, D. (2003). Pendekatan Parametrik Untuk Efisiensi Perbankan Indonesia. Jurnal Bank Indonesia.

Hardianto, D.S., & Wulandari, P. (2016). Islamic Bank vs Conventional Bank: Intermediation, Fee Based Service Activity and Efficiency. International Journal of Islamic and Middle Eastern Finance and Management, 9(2), 296–311. https://doi.org/10.1108/IMEFM-01-2015-0003

Hasan, M.Z., Kamil, A.A., Mustafa, A., & Baten, M.A. (2012). A Cobb Douglas Stochastic Frontier Model on Measuring Domestic Bank Efficiency in Malaysia. PLOS ONE, 7(8), 1–5. https://doi.org/10.1371/journal.pone.0042215

Holod, D., & Lewis, H.F. (2011). Resolving the deposit dilemma: A new DEA bank efficiency model. Journal of Banking and Finance, 35(11), 2801–2810. https://doi.org/10.1016/j.jbankfin.2011.03.007

Hosen, M.N., & Muhari, S. (2013). Efficiency of the Sharia Rural Bank in Indonesia Lead to Modified Camel. International Journal of Academic Research in Economics and Management Sciences, 2(5), 34–53. https://doi.org/10.6007/IJAREMS/v2-i5/298

Jatmiko, W. (2017). Efficiency and Ownership Structure: Evidence from Rural Banks in Indonesia. International Journal of Economics, Management and Accounting, 25(2), 355–380.

Khalib, M., Abdul-Rahman, A., & Janor, H. (2016). Impak Kecekapan Kos terhadap Risiko Kecairan dalam Institusi Perbankan di Malaysia. Jurnal Pengurusan, 47. https://doi.org/10.17576/pengurusan-2016-47-06

Kumbhakar, S.C., & Lovell, C.A.K. (2000). Análise de experimentos em látice quadrado com ênfase em componentes de variância.: II. Análise conjunta. Cambridge University Press. https://doi.org/10.1177/1077558707307580

Manlagnit, M.C.V. (2015). Basel regulations and banks’ efficiency: The case of the Philippines. Journal of Asian Economics, 39, 72–85. https://doi.org/10.1016/j.asieco.2015.06.001

Meeusen, W., & Broeck, J. van Den. (1977). Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error. International Economic Review, 18(2), 435–444.

Muazaroh. (2013). Pengukuran Efisiensi dan Faktor Penentu Tingkat Efisiensi Bank di Indonesia. Universitas Gadjah Mada.

OJK. (2016). Booklet Perbankan Indonesia 2016.

OJK. (2017). Laporan Perkembangan Keuangan Syariah 2016.

OJK. (2018). Statistik Perbankan Syariah - Juni 2018.

Parinduri, R.A., & Riyanto, Y.E. (2014). Bank Ownership and Efficiency in the Aftermath of Financial Crises: Evidence from Indonesia. Review of Development Economics, 18(1), 93–106. https://doi.org/10.1111/rode.12071

Qurniawati, R.S. (2013). Efisiensi Perbankan di Indonesia dan Pengaruhnya Terhadap Return Saham dengan Pendekatan Data Envelopment Analysis (DEA). BENEFIT Jurnal Manajemen Dan Bisnis, 17(1), 27–40.

Rose, P.S., & Hudgins, S.C. (2013). Bank Management & Financial Services (9th Editio). Singapore: McGraw-Hill.

Sadono, E.D. (2017). Efficiency of Islamic Rural Banks (BPRS) in East Java Provice, Indonesia. Tazkia Islamic Finance and Business Review, 11(1–14).

Sealey, C.W., & Lindley, J.T. (1977). Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions. The Journal of Finance, 32(4), 1251–1266.

Tahir, I.M., Bakar, N.M.A., & Haron, S. (2008). Technical efficiency of the Malaysian commercial banks: A stochastic frontier approach. Banks and Bank Systems, 3(4), 65–72.

Undang-Undang Nomor 21 Tahun 2008 Tentang Perbankan Syariah. (n.d.).

Zhang, P., & Kang, S. (2015). Cost Efficiency of Chinese Banks-Using Stochastic Frontier Analysis. International Journal of Management and Applied Science, 1(10), 105–108.

Zuhroh, I., Ismail, M., & Maskie, G. (2015). Cost Efficiency of Islamic Banks in Indonesia – A Stochastic Frontier Analysis. Procedia - Social and Behavioral Sciences, 211, 1122–1131. https://doi.org/10.1016/j.sbspro.2015.11.150




DOI: https://doi.org/10.18196/ijief.1212

Refbacks

  • There are currently no refbacks.


Copyright (c) 2019 IJIEF: International Journal of Islamic Economics and Finance

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.


International Journal of Islamic Economics and Finance (IJIEF)
International Program for Islamic Economics and Finance 
Department of Economics  
Faculty of Economics and Business
Universitas Muhammadiyah Yogyakarta

Office:
Pascasarjana Building, Ground Floor
Jl. Brawijaya (Ringroad Selatan), Kasihan, Bantul
D.I. Yogyakarta 55183, INDONESIA
Official email: ijief@umy.ac.id