Efficiency of Conventional Banks and Islamic Windows in Indonesia: A Comparative Analysis

This study examines and compares the efficiency of conventional banks and its Islamic windows in Indonesia for the period of 2011-2015. A quantitative descriptive analysis was utilized with a balanced panel data method. Secondary data in the form of annual reports of 15 conventional banks together with its 15 Islamic windows were studied for the years of 2011 until 2015. Efficiency was measured using Data Envelopment Analysis. The findings of this study indicate that conventional banks are slightly more efficient than its Islamic windows based on the Constant Return to Scale (CRS) model of efficiency measurement. Meanwhile, based on the Variable Return to Scale (VRS) model, Islamic windows are found to be more efficient than its conventional banks. Therefore, it can be generally concluded that the efficiency of Islamic windows is relatively better than its conventional banks. The findings of this study imply that efficiency measurement of banking institutions has to be approached from different models. This study also indicates that based on certain approaches, banking institutions that are operated based on Islamic principles may achieve more efficiency as compared to the conventional ones. Keywords— Efficiency; Islamic banking; Islamic window; Data envelopment analysis