Abstract
The main objective of this study is to analyze the effect of macroeconomic factors toward efficiency in Islamic and Conventional Banking. Banking as one of components in financial system that highly contributes to the growth and development of the economy in a country, especially after establishment of the first Islamic bank in Indonesia at the year of 1992. Afterwards, Islamic banking began to develop and start to compete with conventional banking. Hence, in order to survive and do fair competitiveness, Islamic and Conventional banking have to maintain its efficiency. This study uses the methodology of Data Envelopment Analysis (DEA). This study also analyze the macroeconomics factors namely inflation, interest rate of Bank indonesia and the growth of Gross Domestic Product (GDP) which affects the bank efficiency. Our data is obtained from annual financial statement published by each islamic and conventional bank and Bank Indonesia starting from 2007 to 2016. This study shows that conventional banks have higher efficiency than Islamic banks, while crisis in 2008 had no significant effect on the efficiency of Islamic and conventional banking. However, a decrease in the level of efficiency that occurs in conventional banking indicates that conventional banking is more sensitive to the crisis.
Highlights
Islamic banking in Indonesia has grown significantly since its first establishment at the year of 1992 (Abduh & Omar, 2009)
By comparing the efficiency level between Islamic banking and Conventional banking using Data Envelopment Analysis (DEA), this study found that Conventional banking has higher efficiency than Islamic banking as Conventional banking has better management and banking technology system compared to Islamic banking (Ahmad & Rahim Abdul Rahman, 2012)
The explanation of the result comprises two main outlines: (a) measurement of bank efficiency using DEA, (b) data analysis with multiple regression technique in order to know the effect of macroeconomics variable on efficiency level of the bank from 2007 to 2016
Summary
Islamic banking in Indonesia has grown significantly since its first establishment at the year of 1992 (Abduh & Omar, 2009). Central Bank of Indonesia reported that 13 of Islamic banks have been officialy operating in Indonesia within the last two decades. This long process is introduced by Conventional bank which implemented dual banking system. Conventional bank created Islamic Business Unit to facilitate and promote more segments of population, for Muslim costumers, within 2002 until 2009. They converted the Islamic Business Unit into General Islamic Bank afterwards. Financial Services Authority (OJK) stated that both Conventional and Islamic banking show rapid trend on asset with about IDR 7.387 trillion per December 2017. Islamic banking has grown threefold more greatly than Conventional banking in terms of growth, while Islamic banking is less on market share (5.44%) compared to Conventional banking (OJK, 2017)
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