Abstract:
Despite various reforms since early 1980s, Indonesian financial system lacked good
governance causing unsoundness in the banking sector leading to severe financial crisis in
1997-1998. In response to the financial crisis, the authorities made major interventions with
main objective of enhancing the resilience of the financial system. However, substantially
less have been done to investigate the impact of the reforms and to assess the performance
of Indonesian commercial banks during the post crisis period. Based on the data on
commercial banks during 2002-2008 and using Data Envelopment Analysis, this study
finds that foreign banks outperform domestic banks, while joint ventures with foreign
banks also tend to have substantially higher performance levels than their domestic
counterparts. Thus, the study concludes that promotion of foreign ownership of banks and
opening more opportunities for joint ventures can enhance the performance of Indonesian
banking system.
