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Productivity Changes in Indonesian Banking: Application of a New Approach to Estimating Malmquist Indices

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Author Info

  • Muliaman D. Hadad

    (Bank Indonesia, Jakarta, Indonesia)

  • Maximilian J. B. Hall

    ()
    (Dept of Economics, Loughborough University)

  • Wimboh Santoso

    (Bank Indonesia, Jakarta, Indonesia)

  • Karligash Kenjegalieva

    ()
    (Dept of Economics, Loughborough University)

  • Richard Simper

    ()
    (Dept of Economics, Loughborough University)

Abstract

In this study, we utilise a new, non-parametric efficiency measurement approach which combines the semi-oriented radial measure data envelopment analysis (SORM DEA) approach for dealing with negative data (Emrouznejad et al., 2010) with the slacks-based efficiency measure of Tone (2001, 2002), to analyse efficiency and productivity changes for Indonesian banks over the period Quarter I 2003 to Quarter IV 2007. Using quarterly data based on supervisory data provided by Bank Indonesia we find that, under the intermediation-based approach to efficiency estimation, average Indonesian bank efficiency somewhat declined during the sample period, from 73% to 63%, reaching a nadir of 53% at end-June 2007. With respect to the bank groupings, Indonesian ‘state-owned’ banks were the most efficient at the beginning of the sample period (with average efficiency of 92%) but, by the end of the sample period, they had been usurped by the ‘joint-venture’ and ‘non-foreign exchange private’ banks. The regional government-owned banks were found to be the least efficient throughout. Finally, Malmquist results for the Indonesian banking industry suggest that the main driver of productivity growth is technological progress. A strategy based on the gradual adoption of newer technology, according to our results, thus seems to have the highest potential for boosting the productivity of the financial intermediary operations of Indonesian banks.

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File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Malmquist_negative_SBM_SORM_Sep_2009.pdf
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Bibliographic Info

Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2009_13.

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Date of creation: Sep 2009
Date of revision: Sep 2009
Handle: RePEc:lbo:lbowps:2009_13

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Keywords: Indonesian Finance and Banking; Productivity; Efficiency.;

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References

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  1. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
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  15. Liu, Fuh-Hwa Franklin & Wang, Peng-hsiang, 2008. "DEA Malmquist productivity measure: Taiwanese semiconductor companies," International Journal of Production Economics, Elsevier, vol. 112(1), pages 367-379, March.
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