A comparative analysis of Sharia banks and conventional banks' performance in Indonesia

• Main Authors: Permatasari, Reni Oktavia, Redzuan, Nur Harena
• Format: Conference or Workshop Item
• Language: English; English; English
• Published: Bank Indonesia 2021
• Subjects: HG1501 Banking; HG3368 Islamic Banking and Finance
• Online Access: http://irep.iium.edu.my/95182/1/Full%20Paper_Reni%20%26%20Harena.pdf; http://irep.iium.edu.my/95182/2/Acceptance%20letter.pdf; http://irep.iium.edu.my/95182/3/Certificate%20to%20Presenter%20-%20Nur%20Harena%20Redzuan.pdf; http://irep.iium.edu.my/95182/
• Institution: Universiti Islam Antarabangsa Malaysia

Currently, Indonesia's financial sector is dominated by the commercial banking industry. Commercial bank is one of the financial services industries in Indonesia which is currently growing rapidly in line with economic development in Indonesia. Banking and economic growth are interconnected so that the welfare of the banking sector influences economic growth. Bank performance is one component that must be considered in banking activities. Therefore, bank performance demonstrates the ability of a company to manage and allocate its resources so that each bank wants to have a good performance in order to survive amid increasingly fierce competition in the financial services industry. This study analyses a comparative performance between Sharia banks (SBs) and conventional banks (CBs) in Indonesia. The performance evaluation of the bank is using the RGEC (risk profile, good corporate governance, earnings, capital) method. Data for this study are based on the financial statements that covers 11 Sharia banks against 11 conventional banks in Indonesia from 2015-2018 yearly period. The independent sample t-test is used in determining the significance of the differential performance of SBs and CBs. Referring to the criteria of Bank Indonesia regulations, the findings show that the average Non-Performing Financing (NPF)/Non-Performing Loan (NPL) and Financing to Deposit ratio (FDR)/Loan to Deposit ratio (LDR) of both SBs and CBs do not meet the NPL/NPF criteria below 2% and 75%, respectively. For the average Good Corporate Governance (GCG), both SBs and CBs do not meet the GCG criteria below 1.5 Furthermore, the average Return on Assets (ROA) of CBs meets the ROA criteria above 1.5%, while SBs do not meet the criteria. However, the average Capital Adequacy Ratio (CAR) of SBs and CBs have met the CAR criteria above 12%. Subsequently, the result of the independent sample t-test shown that there are significant differences of NPF/NPL and ROA of SBs and CBs while there are no significant differences of FDR/LDR, GCG, and CAR for both banks. Moreover, these results indicate that conventional banks performed better than Sharia bank within the period of study. The findings of the study can be a very supporting factors in contributing to the future literature, policy, and Sharia banking industry in Indonesia where it is expected that the performance of Sharia banks in the following years can achieve even better performance.