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

Wasiaturrahma a, Raditya Sukmana b, Shochrul Rohmatul Ajija a,*, Sri Cahyaning Umi Salama c,
Ahmad Hudaifah d
a Department of Economics, Universitas Airlangga, Indonesia
b Department of Shariah Economics, Universitas Airlangga, Indonesia
c Universitas Muhammadiyah Malang, Indonesia
d Department of Islamic Economics, Universitas Internasional Semen Indonesia, Indonesia

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.

Keywords:
Efficiency, Conventional and Islamic rural bank, Data envelopment analysis, Tobit Banking, Corporate finance
Econometrics, Financial economics, Microeconomics

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