A Comparative Study of Efficiency between Conventional and Islamic Banks in Indonesia

Abstract

The paper compared and examined financial performance of Islamic banks against conventional banks before and after the enactment of Indonesia’s Islamic Banking Act No. 21/2008. The law aims to strengthen the regulatory environment for further growth of Indonesia’s market Islamic finance. The data was based on selected financial statements of Islamic commercial banks in Indonesia from year 2000 to 2007. Financial performance measures were expressed in terms of various financial ratios in which were categorized into profitability, liquidity, risk and solvency and efficiency. To test the hypotheses, Mann-Whitney was employed to compare financial performance of Islamic banks and conventional banks. In general, the study found no major difference in financial performance between Islamic banks and conventional banks, except in terms of its liquidity. This indicated that Islamic banks are generally more liquid as compared to conventional ones