COMPARING THE INTERTEMPORAL EFFICIENCY OF ISLAMIC BANKS IN INDONESIA AND MALAYSIA

Abstract

This study aims to measure and compare the intertemporal efficiency of Islamicbanks in Indonesia and Malaysia using data envelopment analysis (DEA) togetherwith window (intertemporal) analysis for the period 2012–2018 and applying anintermediation approach. Window analysis is used to indicate the stability of efficiencyover the study period. The findings show that the intertemporal technical efficiency(TE) of Islamic banks in Indonesia was 77.4% with stability score of 0.034, which wassignificantly more efficient and more stable than Malaysian banks at 75.1% withstability score of 0.169. Moreover, the the intertemporal pure technical efficiency(PTE) of Islamic banks in Indonesia was 91.7% with stability score 0.020, which wasalso significantly more efficient and more stable than Malaysian banks at 88.0% PTEand stability score of 0.161. In contrast, the intertemporal scale efficiency (SE) ofIslamic banks in Indonesia was 84.5%, slightly lower than that of Malaysian banks at85.3% but not significantly different. PTE improvement has contributed to TEimprovement, while SE has not reached an optimal level. Comparison to previousresults also showed that since the global financial crisis the PTEs of Islamic banks inIndonesia and Malaysia have improved while SEs have worsened. Therefore, effortsto improve SE by expanding the size of Islamic banks to reach optimum economiesof scale are urgently needed.