FINANCIAL EFFICIENCY IN INDONESIAN ISLAMIC BANKS

A DEA ASSESSMENT OF COST, REVENUE AND PROFIT EFFICIENCY

Abstract

Indonesia’s Islamic banks have usually been judged on narrow yardsticks how cheaply they run or how well they convert inputs into outputs.  We stepped back and looked at all three sides of the coin at once: how wisely they spend, how effectively they earn, and how much profit is left on the table. Using a standard DEA model that allows for variable returns to scale, we tracked nine full-fledged Islamic commercial banks from 2016 through 2022. The headline numbers are blunt: on average they waste 45 % of their inputs (cost efficiency 0.55), leave 28 % of revenue on the floor (revenue efficiency 0.72), yet still manage to keep 84 % of every rupiah of potential profit (profit efficiency 0.84). After the 2019 mega-merger that created Bank Syariah Indonesia and the accompanying push into mobile banking, all three scores ticked upward.  The takeaway for OJK and KNKS is simple: Indonesian Islamic banks can stay profitable even while they remain sloppy on cost; regulators now have an integrated benchmark that ties financial survival to the Maqasid al-Shariah goal of protecting wealth.