Technical and Scale Efficiency Employing Data Envelopment Analysis: Empirical Evidence from Islamic Public Banks in Indonesia

ABSTRACT Technical and scale efficiency was estimated to conduct the present research in the Islamic Public Banks in Indonesia. A nonparametric approach through data enveloment analysis (DEA) is employed. The data are obtained from the quarterly-published report of the Central Bank (Bank Indonesia) that covers the period from January 2011 to March 2015 with 10 Islamic public banks as the sample of the research using intermediation approach. The results showed that the mean technical efficiency were found to be 72.9% during the entire quarters for all Islamic public banks and the technical inefficiency (TIE) was due to pure technical inefficiency (PTIE) compare to scale inefficiency (SIE). The operations have been operated in optimum scale relatively. However, the fullest exploitation of resources leads to managerial of inefficiency. Thus, the Islamic finance experts are highly demanded to lead the poor financing portfolio management.