Dataset Information

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

ABSTRACT: 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.

SUBMITTER: Wasiaturrahma

PROVIDER: S-EPMC7371765 | biostudies-literature | 2020 Jul

REPOSITORIES: biostudies-literature

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

Wasiaturrahma Sukmana Raditya R Ajija Shochrul Rohmatul SR Salama Sri Cahyaning Umi SCU Salama Sri Cahyaning Umi SCU Hudaifah Ahmad A

Heliyon 20200717 7

This study aims to analyze the efficiency performance of conventional and Islamic rural banks in Indonesia, specifically, <i>Bank Perkreditan Rakyat</i> (BPR) and <i>Bank Pembiayaan Rakyat Syariah</i> (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 ...[more]

PMID: 32715119

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Project description:In the recent years, the burgeoning non-performing assets (NPAs) have become a matter of concern and scrutiny in India as the surge in NPAs impinge on the credit services of the banks, make the banks vulnerable to external shocks, leave them with less cushion in case of idiosyncratic shocks and thus, leading to the abrasion of their productive capital. In this backdrop, some very normative questions become inevitable. How has the technical efficiency of the banks in India changed over time especially after the asset quality review, 2016? How does undesirable output like non-performing assets (NPA) impact the technical efficiency of banks in India? Does technical efficiency have anything to do with the ownership of banks? These are some of the questions we endeavour to answer through our study by employing three cornerstone methodologies namely DEA, Malmquist productivity index and SFA in the banking sector for the period 2014-2020.The results obtained from employing DEA and SFA both points toward the heterogeneity in the technical efficiency of public sector banks and private sectors banks operating in India. The results obtained from DEA are majorly three-fold. Firstly, private sector banks have fared better than the public sector banks, while the SFA scores show that the public sector ownership promotes efficiency. Secondly, the technical efficiency of public sector banks has consistently been falling from 2014 to 2017 only to rise in the later years, evidence corroborated by the SFA scores also. This trend is in line with the slew of measures adopted by the government and RBI like AQR and mergers of banks subsequently. Although according to the Malmquist productivity decomposition results, we find that productivity of banks have been falling for the period 2014-2020. Thirdly, the non-performing assets are detrimental for the efficiency of the banks. Like DEA, the SFA results also shows the presence of technical inefficiency in the Indian banking sector and a similar trend in the technical efficiency wherein the scores decline from 2014 through 2017 and then they rise subsequently.Supplementary informationThe online version contains supplementary material available at 10.1007/s40953-021-00247-x.

Dataset Information

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

Publications

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

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