THE INTER-TEMPORAL RELATIONSHIP OF NON-PERFORMING LOAN AND COST EFFICIENCY OF INDONESIAN COMMERCIAL BANKS DURING PERIOD 2013Q1 TO 2016Q3
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Institusion
Universitas Bakrie
Author
Liagina, Clara
Subject
Bank and Banking
Datestamp
2017-05-26 07:54:01
Abstract :
This research investigates the inter-temporal relationships between bank efficiency, especially cost efficiency and non-performing loan (NPL) of Indonesian Commercial Banks in the period of 2013Q1 to 2016Q3 to test two hypotheses introduced by Berger and deYoung (1997): ?Bad Luck? and ?Bad Management?. This research covers the periods January 2013 ? September 2016 using time series and quartely -published report data of Central Bank of Indonesia (Bank Indonesia) with 10 commercial banks in Indonesia. The Data Envelopment Analysis (DEA) approach is used to measure cost efficiency of commercial banks and Vector Autoregressive (VAR) model is used to test the two hypotheses ?Bad Luck? and ?Bad Management?. The finding of DEA indicates that Bank Permata (BNLI) in every quarter as the most cost efficient in managing its cost with all efficiency score is equal to 1. The average cost efficiency of commercial banks is 0.9294 or 92.94%. The finding also indicates that inefficiency problem of banks lies in the input side rather than output side. This results support the ?bad management? hypothesis proposed by Berger and De Young (1997) which suggested that decrease in measured bank efficiency is generally followed by increases in non performing loan. The bad management hypothesis indicates the major risks facing commercial banks are caused by internal problem.
This research investigates the inter-temporal relationships between bank efficiency, especially cost efficiency and non-performing loan (NPL) of Indonesian Commercial Banks in the period of 2013Q1 to 2016Q3 to test two hypotheses introduced by Berger and deYoung (1997): ?Bad Luck? and ?Bad Management?. This research covers the periods January 2013 ? September 2016 using time series and quartely -published report data of Central Bank of Indonesia (Bank Indonesia) with 10 commercial banks in Indonesia. The Data Envelopment Analysis (DEA) approach is used to measure cost efficiency of commercial banks and Vector Autoregressive (VAR) model is used to test the two hypotheses ?Bad Luck? and ?Bad Management?. The finding of DEA indicates that Bank Permata (BNLI) in every quarter as the most cost efficient in managing its cost with all efficiency score is equal to 1. The average cost efficiency of commercial banks is 0.9294 or 92.94%. The finding also indicates that inefficiency problem of banks lies in the input side rather than output side. This results support the ?bad management? hypothesis proposed by Berger and De Young (1997) which suggested that decrease in measured bank efficiency is generally followed by increases in non performing loan. The bad management hypothesis indicates the major risks facing commercial banks are caused by internal problem.
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