IDEAS home Printed from https://ideas.repec.org/p/lbo/lbowps/2009_13.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Muliaman D. Hadad & Maximilian J. B. Hall & Wimboh Santoso & Karligash Kenjegalieva & Richard Simper, 2009. "Productivity Changes in Indonesian Banking: Application of a New Approach to Estimating Malmquist Indices," Discussion Paper Series 2009_13, Department of Economics, Loughborough University, revised Sep 2009.
  • Handle: RePEc:lbo:lbowps:2009_13
    as

    Download full text from publisher

    File URL: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Malmquist_negative_SBM_SORM_Sep_2009.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Laeven, Luc & Majnoni, Giovanni, 2003. "Loan loss provisioning and economic slowdowns: too much, too late?," Journal of Financial Intermediation, Elsevier, vol. 12(2), pages 178-197, April.
    2. Subal Kumbhakar & Dan Wang, 2007. "Economic reforms, efficiency and productivity in Chinese banking," Journal of Regulatory Economics, Springer, vol. 32(2), pages 105-129, October.
    3. repec:pal:jorsoc:v:55:y:2004:i:10:d:10.1057_palgrave.jors.2601768 is not listed on IDEAS
    4. Williams, Jonathan & Nguyen, Nghia, 2005. "Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2119-2154, August.
    5. Emrouznejad, Ali & Anouze, Abdel Latef & Thanassoulis, Emmanuel, 2010. "A semi-oriented radial measure for measuring the efficiency of decision making units with negative data, using DEA," European Journal of Operational Research, Elsevier, vol. 200(1), pages 297-304, January.
    6. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    7. Fukuyama, Hirofumi & Weber, William L., 2002. "Estimating output allocative efficiency and productivity change: Application to Japanese banks," European Journal of Operational Research, Elsevier, vol. 137(1), pages 177-190, February.
    8. Dowling, J. Malcolm & Yap, Chin-Fang, 2008. "Indonesian economic development: Mirage or miracle?," Journal of Asian Economics, Elsevier, vol. 19(5-6), pages 474-485.
    9. Sato, Yuri, 2005. "Bank restructuring and financial institution reform in Indonesia," The Developing Economies, Institute of Developing Economies, Japan External Trade Organization(JETRO), vol. 43(1), pages 91-120, March.
    10. Kenjegalieva, Karligash & Simper, Richard & Weyman-Jones, Tom & Zelenyuk, Valentin, 2009. "Comparative analysis of banking production frameworks in eastern european financial markets," European Journal of Operational Research, Elsevier, vol. 198(1), pages 326-340, October.
    11. Tone, Kaoru, 2002. "A slacks-based measure of super-efficiency in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 143(1), pages 32-41, November.
    12. 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.
    13. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    14. International Monetary Fund, 2007. "Indonesia; Selected Issues," IMF Staff Country Reports 07/273, International Monetary Fund.
    15. Tone, Kaoru, 2001. "A slacks-based measure of efficiency in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 130(3), pages 498-509, May.
    16. 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.
    17. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
    18. Scheel, Holger, 2001. "Undesirable outputs in efficiency valuations," European Journal of Operational Research, Elsevier, vol. 132(2), pages 400-410, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Indonesian Finance and Banking; Productivity; Efficiency.;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lbo:lbowps:2009_13. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Huw Edwards). General contact details of provider: http://edirc.repec.org/data/delbouk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.