A Comparison of Sharia Banks and Conventional Banks in Terms of Efficiency, Asset Quality and Stability in Indonesia for the Period 2008-2016

Abstract

This research aims to compare the efficiency, asset quality, and bank stability between Islamic banking and conventional banking system in Indonesia in 2008 – 2016. This research used secondary data based on Financial Statement derived from the Financial Service Authority (Otoritas Jasa Keuangan or OJK). The methodology of the study is descriptive by comparing efficiency, asset quality and stability between Islamic banks and conventional banks. The variables used are: (1) overhead cost and cost income ratio as efficiency proxy; (2) the nonperforming loan is a proxy of asset quality; and (3) return on assets and Z score are proxy of stability. The result from statistic data process showed that there were differences in efficiency, asset quality, and stability between Islamic Banking and Conventional Banking where conventional banking more efficient, have better asset quality and more stability than sharia banking. There are some causes of sharia banking weakness such as of Information Technology that still behind of conventional banking, competency, and experience of human resources and the consciousness of the Muslim community to use sharia banking products for their primary financial transaction. Nevertheless, the contribution of sharia banks in improving social welfare has an essential role because the higher the income received, the higher the zakat issued by Islamic banks. Sharia banks as a solution of conventional banking that caused the financial crisis because of the principle of justice and Falah is an essential pillar of sharia banks.