THE FACTORS THAT AFFECT EFFICIENCY OF INDONESIAN’S BANKING

  • Muhamad Wahid Ibrahim Universitas Muhammadiyah Magelang
  • Bayu Sindhu Rahardja Universitas Muhammadiyah Magelang
Keywords: Bank Efficiency, Cost Efficiency, Cost to Income Ratio, Bank Specific, Economic Variable

Abstract

Banks as Financial Intermediation become a key of funds availability to support the national
development, should be efficient in its operation. Openness information which started since
the era of reform should change the bank efficiency, due to the reduced asymmetry
information. However, some sources reported that Indonesian national banking was
inefficient. This study examines the cost efficiency of banks listed in Indonesia stock exchange
since the reformation era until now (in the year 2000 – 2017) as measured by Cost to Income
Ratio (CIR), as well as analyzing the determination of bank efficiency. The results show that
bank inefficiency determined by the Bank Size, Non Performing Loan, Net Interest Margin,
Earning Assets, Interest Rate Gap, Economic Growth, and inflation. The dominant factor that
gave an effect are Bank Size and Net Interest Margin for the internal factors, and Economic
Growth as external factors. The result implied that Listed Bank in Indonesia Stock Exchange
should continue to consolidate the Bank Size, and increase or hold the ratio of NIM in high
level. For the government/authority should create high economic growth and maintain
inflation environment to make their banking industry more efficient.

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Published
2018-10-01