DEA EFFICIENCY AND RISK: A COMPARATIVE STUDY OF ISLAMIC AND CONVENTIONAL BANKS IN INDONESIA

• Main Author: Liana Rahmawati (19015020), Tri
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/31371
• Institution: Institut Teknologi Bandung

This study examined the efficiency of Islamic and conventional banks in Indonesia and compared the result of efficiency for both banks. The efficiency result will be identified the correlation to risks. Data Envelopment Analysis (DEA) and intermediation approach are applied to measure the efficiency scores. The measurement of efficiency focus on the output orientation and generate three efficiency result, which are Constant Return to Scale (CRS), Variable Return to Scale (VRS), and scale efficiency. Risk is measured by using bank financial ratios. Spearman correlation is used to observe the correlation between credit risk, liquidity risk, capital risk and efficiency. This study collects data from the Financial Services Authority (FSA or Otoritas Jasa Keungan) for the period 2010 to 2017. The finding of this study shows that the average of CRS, VRS, scale efficiency in conventional banks is higher than the average efficiency in Islamic banks. The Mann-Whitney test revealed that there is a statistically significant difference between the efficiency of Islamic banking and the efficiency of conventional banking. The Spearman’s correlation test indicates that Credit risk and scale efficiency in conventional banks has statistically significant negative correlation, while credit risk and scale efficiency in Islamic commercial banks has statistically significant negative correlation. Liquidity risk and CRS efficiency of conventional banks has statistically significant positive correlation, while Liquidity risk and CRS efficiency in Islamic commercial banks has statistically significant positive correlation. Capital risk and scale efficiency of conventional banks has statistically significant positive correlation, while capital risk and scale efficiency in Islamic commercial banks has statistically significant positive. For future research, a production approach or asset approach can be applied to obtain another insight in examining the correlation between risk and efficiency.