Post-Crisis Performance of Indonesian Commercial Banks: A Revenue Based DEA Approach.

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.