Islamic bank vs conventional bank: intermediation, fee based service activity and efficiency

Dimas Satria Hardianto, Permata Wulandari

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)

Abstract

Purpose: The 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/approach: This research uses two methods, namely, stochastic frontier approach and panel data regression. Findings: The 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/value: This 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.

Original languageEnglish
Pages (from-to)296-311
Number of pages16
JournalInternational Journal of Islamic and Middle Eastern Finance and Management
Volume9
Issue number2
DOIs
Publication statusPublished - 2016

Keywords

  • Conventional banks
  • Efficiency
  • Fee-based income
  • Intermediation
  • Islamic banks
  • Stochastic frontier approach

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