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Bulletin of Monetary Economics and Banking

Document Type

Article

Abstract

This paper analyze the bank efficiency in Indonesia by deriving the profit function. We apply the stocahstic frontier approach on monthly data during 2001:01 – 2004: 12, covering the 20 largest asset banks. We incorporate the function of the bank as an intermediary institution by including the intermediary stressing variable on the profit function. This is important to capture the possibility when the large profit is gathered from non-operational profit sources such as recap fund or SBI.The result of the study indicate that the average efficiency of the model with intermediary stressing is lower that without intermediary stressing. The 5 largest efficient bank without considering the intermediation stressing, in fact becomes the lowest efficient bank when the model include the intermediary stressing. The findings implies may have a great implication of the Indonesian central policy, when a higher support to real sector is preferred.Keyword: efficiency, profit function, stochastic frontier, bank intermediary, IndonesiaJEL: C52, E51, E58

First Page

529

Last Page

544

Creative Commons License

Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Indonesia

Affiliation

Bank Indonesia

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