Portion of Foreign Ownership and Efficiency of Banks in Indonesia

Abstract

This study aimed to accomplish the following: (1) determine the foreign ownership in a private national bank and a non-foreign exchange bank; (2) determine the impact of foreign ownership on the efficiency of the national private banking and non-foreign exchange; and (3) determine if there are differences in the impact of the percentage of foreign ownership of a bank on the efficiency of national private groups and non-foreign exchange. The samples are comprised of banks in the group of Foreign-Exchange National Private Bank (BUSND) and the National Private Bank Non-Foreign Exchange (BUSNND). The number of banks that became the subject of research include as many as 54 banks from the period 2001–2013 with the total number of observations being 702; however, the number of observations included in the data processing is 648. This is due to the use of variable BOPO in the previous year, so the data BOPO was 1 year before starting 2002. Research variables used are BOPO, share of foreign ownership, bank size, and group dummy variables. The equation used is OLS research using panel data. The results of this study prove the following: (1) Foreign ownership has a positive influence on inefficiencies for a particular group of BUSND and BUSNND; (2) the greater the bank’s assets, the more efficient the bank tends to be; and (3) there is no difference in the impact of foreign ownership on bank-efficiency levels among the BUSND and BUSNN groups. The results of this study have implications for the policy to restrict foreign ownership in national banks. Revisions of the Banking Act, one of which is to limit foreign ownership in national banks, are being processed in the Commission XI. The results of this study can be considered in the revision of the Banking Law. Foreign ownership is a particular point because increased foreign ownership tends to decrease banking system efficiency.