Published in:
International Journal of Islamic and Middle Eastern Finance and Management, 9 (2016) 2, Seite 296-311
Language:
English
DOI:
10.1108/imefm-01-2015-0003
ISSN:
1753-8394
Origination:
Footnote:
Description:
PurposeThe aim of this research is to compare the differences of intermediation, fee-based service activity and efficiency of conventional banks vs Islamic banks in Indonesia for the 2011-2013 period. Moreover, this study also includes some control variables to find their effect on the dependent variables.Design/methodology/approachThis research uses two methods, namely, stochastic frontier approach and panel data regression.FindingsThe result indicates that Islamic banks have a higher intermediation ratio, have higher proportion on fee income-to-total operating income and are less efficient. The control variable that has a positively significant effect on intermediation ratio is size; meanwhile, inefficiency and non–loan-earning asset are negatively affecting the intermediation ratio. The control variable that show a positively significant effect on the proportion of fee income-to-total operating income is size; meanwhile, the credit risk variable has no significant effect on the proportion of fee income-to-total operating income. Size and credit risk are the control variables that have a negative relation to efficiency.Originality/valueThis study has significantly contributed to Indonesian Islamic banking based on which the Islamic banking manager should recognize that the intermediation level, fee-based service activity and efficiency are crucially important in establishing competition and maintaining sustainable Islamic banking.