Proceedings of Global Business and Social Science Research Conference
11 - 13 May 2015, Grand Mirage Hotel, Bali, Indonesia, ISBN: 978-1-922069-75-7
Bank Efficiency and Non-Performing Financing (NPF) in the
Indonesian Islamic Banking
Shinta Amalina Hazrati Havidz and Chandra Setiawan
This paper investigates the efficiency of Islamic banks in Indonesia by employing Data
Envelopment Analysis (DEA) approach, the determinants of banks efficiency, and nonperforming financing (NPF). The authors further examine the inter-temporal relationships
between banks efficiency and non-performing financing (NPF) of Islamic Banks in Indonesia to
test two hypotheses: „Bad Luck‟ and „Bad Management‟. The data covers the periods of
January 2008- September 2014 using quarterly-published report data from Central Bank (Bank
Indonesia) with 4 Islamic banks as the sample of research. The banks‟ efficiency is estimated
by technical efficiency (TE), pure technical efficiency (PTE), and scale efficiency (SE). Panel
Least Square for fixed effect model is used to find the determinants of efficiency and NPF.
Panel-VAR model is used to test the two hypotheses „Bad Luck‟ and „Bad Management‟. The
finding reveals that there is no Islamic banks that consistently efficient for all periods of
research by TE, PTE, and SE. However, Bank Syariah Mandiri indicates as the most efficient
averagely among the sample of this research. The overal results show that efficiency of Islamic
Banks is affected significantly by return on assets (ROA), operational efficiency ratio (OER),
and inflation rates (INF), while financing to deposit ratio (FDR), capital adequacy ratio (CAR),
size, and GDP growth rate have insignificant effect on banks efficiency. In term of the
determinants of NPF, there are significant effects of size, operational efficiency ratio (OER), and
GDP growth rate toward NPF, while return on assets (ROA), financing to deposit ratio (FDR),
capital adequacy ratio (CAR), and inflation rate (INF) have no significant effect on NPF. The
research supports “Bad Management” hypotheses since it is found that possibly because of
poor financing portfolio management of Indonesian Islamic Banking in the period and sample of
the research.
Keywords: Data Envelopment Analysis, Panel Least Square, Panel-VAR, Bad Luck, Bad
Management
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Shinta Amalina Hazrati Havidz, S.E., M.B.A, Management Study Program – Banking and Finance, President
University, Indonesia, Jl. Ki Hajar Dewantara, Kota Jababeka, email: shintahavidz@president.ac.id, HP: +62
812 9784 2989, phone: +62 21 8910 9762, fax: +62 21 8910 9768 (corresponding author).
Dr. Chandra Setiawan, Ph.D, Management Study Program – Banking and Finance, President University,
Indonesia, Jl. Ki Hajar Dewantara, Kota Jababeka, email: chandra@president.ac.id, HP: +62 816 970 795,
phone: +62 21 8910 9762, fax: +62 21 8910 9768