Cost Efficiency and Profit Efficiency Analysis and Its Effect on Profitability in Islamic Banks in Indonesia


  • Riko Hendrawan
  • Martono Hendro Sulistyo


With a market share below 6%, Islamic banking faces considerable challenges to maintain the existence of its business. Islamic banks show an increase in assets of 856% in the 2008-2017 period, but this amount is still very small compared to conventional commercial bank assets. This study aims to examine Islamic banks' profit efficiency and cost efficiency and assess their influence in the 2011-2017 period on the profitability rate of 11 Islamic banks in Indonesia. Efficiency research is carried out through 2 stages. The first step is to get the level of efficiency of Islamic banking with the Stochastic Frontier Analysis (SFA) method that re-expresses input, output and environmental variables. The second stage is measuring the effect of profit efficiency and cost efficiency variables on the Islamic bank ROA profitability ratio variable. From the results of the study, Bank Panin Syariah was at the highest position and Bank Maybank Syariah was at the lowest position in profit efficiency, while Bank Mega Syariah was in the highest position and Bank Jabar Banten Syariah was in the lowest position in cost efficiency. This research also confirmed that Profit efficiency and cost efficiency have no significant effect on the level of profitability of Islamic banks.