Analysis of the efficiency performance of Sharia and conventional banks using stochastic frontier analysis

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There are two sectors of banks operating in Indonesia, namely Sharia banks and conventional banks. Improving performance is important in maintaining public confidence in the bank. Efficiency is one of the parameters to measure the performance of Sharia banks. This study measures the comparative level of technical efficiency of Sharia commercial banks and conventional banks by Stochastic Frontier Analysis method during 2011–2015 period by using 10 samples of Sharia commercial banks and conventional banks. Input variables in this study are total deposits, operational costs, and other operational costs. Total financing is an output variable. The results of this study show that total deposits and operational costs have a positive and significant impact on total financing in Sharia and conventional banks. The average score of the technical efficiency of Sharia commercial banks during the period observed is 0.84 and conventional banks is 0.85.

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    • Figure 1. Islamic Finance Country Index (IFCI, 2017)
    • Figure 2. Theoretical framework
    • Table 1. The development of national sharia banking performance (in trillion rupiah)
    • Table 2. Sample selection criteria
    • Table 3. Operational definition
    • Table 4. Estimated results of MLE of Sharia commercial banks
    • Table 5. Estimation results of a conventional bank MLE
    • Table 6. Efficiency of Sharia commercial banks and conventional banks
    • Table 7. Differentiation testing using t-test