Keywords
Islamic Commercial Banks
Stochastic Frontier Analysis
How to Cite
Abstract
In general, one way to improve banking efficiency is by increasing the business scale. However, whether increasing the scale of sharia banking businesses will improve their performance needs to be studied more rigorously. This research aims to measure the level of efficiency and examine the occurrence of economies of scale of Islamic commercial banks in Indonesia during the period 2017 - 2022. The level of efficiency is measured using the stochastic frontier approach (SFA) method, while the economies of scale is measured using a panel data regression approach with four business scale measurements: total assets, total financing, total deposits, and total equity. This research is based on annual data on 12 Islamic commercial banks. Using a value range between zero and 1, the results of this study show an average cost efficiency in Islamic banking of 0.69 to 0.84. During the five year observation period, 2017-2022, the level of efficiency experienced a significant decline during the Covid-19 pandemic, especially in the third quarter of 2020. In addition, this research found that economies of scale work in Islamic banks when the size is measured by equity, but there are diseconomies of scale if the size is measured by total financing or total deposits, and there is no economy of scale if the size is measured by total liabilities. The implications of this research are related to sharia banking efficiency development policies which are not always related to increasing business scale, but need to pay attention to measuring the right business scale.
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