Efficiency of Conventional Banks in Indonesia: A Data Envelopment Analysis Approach

Abstract

The goal of this study is to find out the efficiency of conventional banks on the Indonesia Stock Exchange during the 2021–2024 period using Data Envelopment Analysis (DEA) with profit and production approaches through panel data regression. This research uses a quantitative explanatory approach with purposive sampling. The sample consists of 32 conventional commercial banks with 128 observations. The DEA profit approach uses assets, operating expenses, and equity as inputs and net income as output, while the production approach uses assets, equity, and operating expenses as inputs and loans, third-party funds, and fee-based income as outputs. The results show that the average efficiency score of the production approach is higher than the profit approach, at 0.866661 compared to 0.532803. Conventional commercial banks are more efficient in generating intermediation and service outputs than in generating net profit. Large-asset banks generally have higher efficiency scores than medium-asset banks. The regression results show that, in the profit approach, operating expenses have a significant negative effect on efficiency, while net income has a significant positive effect. Meanwhile, in the production approach, operating expenses have a significant positive effect, while fee-based income has a significant negative effect on efficiency. Assets and equity do not significantly affect efficiency in either approach. This study concludes that efficiency is more strongly reflected in production activities than in profit generation. Therefore, banks need to improve cost control, asset productivity, profit optimization, and the efficiency of service-based income to enhance overall banking efficiency.