Cost Efficiency of Islamic Banks in Indonesia – A Stochastic Frontier Analysis

AbstractThis study aims at 1) estimating the cost efficiency of Islamic Banks –using stochastic cost frontier approach, (2) determining cost inefficiency sources and (3) analysing the influence of managerial competency and structural variable on cost efficiency. The samples of observation are three full Islamic banking system and 19 conventional banks listed on the Indonesia Stock Exchange (IDX) purposefully from 2004.03 – 2010.4. The result showed that Islamic Banks are superior in the achievement of technical efficiency, but the average cost efficiency is much lower than Conventional Banks. Cost inefficiency of Islamic-Banks come from allocative inefficiency