The evolution of Bank Productivity Growth in Indonesia: An Empirical Analysis during 1993 – 2011

Abstract

This study investigates the source of productivity growth in the Indonesian banking sector during 19 years from 1993 to 2011. The industry had been through several periods of reforms, starting from the radical deregulation in the late 1980s, the restructuring period following the 1997 Asian financial crisis, to the consolidation period in the mid-2000s. Using panel data of 101 commercial banks, we explore productivity growth using Malmquist indices complemented with bootstrapping technique of Simar and Wilson (1999) to provide measures of the statistical precision of the results. The Malmquist index provides measures of total factor productivity, efficiency change and technological change. Results show the productivity is progressing moderately and appears to be less volatile towards the end of the period. Furthermore, technological change tends to be the main sources of productivity improvement rather than efficiency change.