BANKING EFFICIENCY ANALYSIS OF CONVENTIONAL BANKS AND ISLAMIC BANKS IN INDONESIA FROM 2012-2017 USING DEA

• Main Author: Muharam Mahmudi (19015219 ), Ilham
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/27976
• Institution: Institut Teknologi Bandung

Countries that fall into the emerging economy category need to understand some of the risks associated <br /> <br /> with the presence of foreign banks in their markets (Detragiache and Gupta, 2006). Indonesia as an <br /> <br /> emerging economy country has become a potential target of foreign direct investment resulting with the <br /> <br /> inevitably high penetration of foreign owned bank in Indonesia. It is recorded during the period of 2008 to <br /> <br /> 2017, 3 major banks in this research sample has changed its ownership to foreign owned. While their asset <br /> <br /> categorized as foreign owned, the asset growth of both domestic and foreign banks are still increasing <br /> <br /> despite the tightening competition from foreign banks. <br /> <br /> The literature of the effect of foreign ownership entry in banking sector in Indonesia is still limited in <br /> <br /> number and brings controversial view whether the effect is positive or negative. Some believe that the <br /> <br /> presence of foreign banks in the domestic market helps improve the financial performance of the local <br /> <br /> banking industry (Beck et al., 2006 and Boldrin and Levine, 2009). On the other hand, Fathi (2010) shows <br /> <br /> that the entry of foreign banks has a negative impact on the efficiency of local banks. Therefore, the purpose <br /> <br /> of this study is to examine the effect of foreign ownership entry to banking sector in Indonesia. <br /> <br /> The determinants being observed in the research are CAR, LDR, FED, NPL, NIM, Bank Size, BOPO, <br /> <br /> CRDTA, INFL, and GDP. Where Return on Assets (ROA) that indicates the profitability of an institution <br /> <br /> measured by Net Income to Total Assets as the dependent. This research used the sample of 19 commercial <br /> <br /> banks categorized as BUKU 3 and BUKU 4 over the period of 2008 to 2017. Panel data regression used as <br /> <br /> the research methodology using the statistical tools of EViews 9.0. <br /> <br /> The result found out that NPL, BOPO, and GDP are having a negatively significant relationship to the <br /> <br /> banks’ profitability. While CAR, LDR, NPL, NIM, LNSIZE, and Inflation Rate found to be positive and <br /> <br /> significantly correlated with the profitability of the bank. Although not significant, the dummy variable of <br /> <br /> Foreign Ownership Entry has a positive relationship toward the profitability of bank. The intercept result <br /> <br /> shows that Bank Bukopin has the highest increase in the ROA while BTPN has the least increase during <br /> <br /> the research period when all the independent variable assumed to be constant. <br /> <br /> Management of bank should consider and maintain the ROA, since it directly reflects the bank’s financial <br /> <br /> condition. Management could pay more attention especially to the independent variables that have a <br /> <br /> significant impact on the profitability which are CAR, LDR, NPL, NIM, Bank Size, BOPO, GDP, and <br /> <br /> Inflation rate. FED is also need to be highlighted in this research due to it shows that Foreign Ownership <br /> <br /> Entry in banking sector is proven to have positive relationship with the banks’ profitability, but government <br /> <br /> should still monitor this event with policies to ensure foreign banks to compete fairly. Further research <br /> <br /> could extend the observation period as 1998 is known to have more merger and acquisition of financial <br /> <br /> institutions and could highlight another monetary crisis event. <br /> <br />