Projection of Indonesian Islamic commercial banks efficiency and stability in the Covid-19 period using DEA and panel ARDL

Abstract

Purpose – This study aims to assess the efficiency and stability of Indonesia Islamic Commercial Banks, and then the results are used as a projection in the Covid-19 period. It uses the sample from 14 Islamic Commercial Banks in Indonesia and its quarterly data from 2017 to 2020. Methodology – The DEA method analyses VRS and CRS scale using output orientation. The Panel ARDL also uses two models from the specifications in DEA, with the inputs as independent variables and the outputs as dependent variables. Findings – The result of DEA is visualized in four quadrants from each CRS and VRS model. Respectively in each model, 1 and 5 banks are highly efficient and stable, 5 and 2 banks have high efficiency but low stability, 4 and 2 banks have low efficiency but high stability, 4 and 5 banks have low efficiency and stability. In the Panel ARDL, third party fund, operational expenses, and total financing have significant and stable long-run effect in both models. In the short-run, only operational expenses significantly affect operational earnings, whereas only total financing significantly affects total assets. Practical implications – Banks may use strategies such as absorbing workforces as marketing representatives, utilizing cooperative agreements, crowdfunding, improving banking technology, creating provisions on expected credit loss, and deferring profit.