The Efficiency of Islamic Banks: Empirical Evidence From Indonesia

Conventional banks are often considered more efficient than Islamic banks because they have been operating for decades, but Islamic banks have shown rapid development recently. Therefore, this study mainly aims to compare the level of efficiency of conventional banks and Islamic banks and which ones have the best level of efficiency. This study employs panel data using Stochastic Frontier Analysis (SFA) as the data analysis technique. The data used is annual data from 13 conventional banks and 13 Islamic banks in Indonesia during the 2014-2019 period. The result shows no significant difference in the efficiency of conventional banks and Islamic banks. This result is presumably influenced by the small size of the bank and the total number of banks used in the study. The data used in the study is limited to the period from 2014 to 2019. The variables utilized are also limited to the availability of financial report data which is publicly published. This study provides additional empirical evidence regarding conventional banks' and Islamic banks' efficiency in Indonesian banking by using the latest data. While theoretically, Islamic banks are expected to be more efficient than conventional banks, this study did not find any strong support for the case in Indonesia during the observation perio