Financial performance of rural banks in Indonesia: A two-stage DEA approach

• Main Authors: Wasiaturrahma, Raditya Sukmana, Shochrul Rohmatul Ajija, Sri Cahyaning Umi Salama, Ahmad Hudaifah
• Format: Article
• Language: English
• Published: Elsevier 2020-07-01
• Series: Heliyon
• Subjects: Efficiency; Conventional and Islamic rural bank; Data envelopment analysis; Tobit; Banking; Corporate finance
• Online Access: http://www.sciencedirect.com/science/article/pii/S2405844020312342

This study aims to analyze the efficiency performance of conventional and Islamic rural banks in Indonesia, specifically, Bank Perkreditan Rakyat (BPR) and Bank Pembiayaan Rakyat Syariah (BPRS). Using a DEA approach, the results indicate that both BPR and BPRS are still inefficient in terms of the intermediation role but are efficient in production. Furthermore, the Tobit estimation show that these two efficiency results are positively affected by location and the capital adequacy ratio (CAR). These rural banks operating in cities tend to have a higher level of efficiency than otherwise. Moreover, the higher the capital, the more efficient both Islamic and conventional rural banks in terms of production and intermediation.