Banking efficiency and performance: a test of banking characteristics in an emerging market

This study is to test the performance of Indonesian banks in the most-stable considered period, 2005–2007, after having the worst crisis in the Indonesian banks' history, the Asian Financial Crisis 1997–1998. By using Return on Asset (ROA), Return on Equity (ROE), and Net Interest Income to Total Asset (NIITA) as the proxies for bank performance and Non Performing Loan (NPL) as the proxy for bank efficiency, we investigated 25 Indonesian banks for three consecutive years and applied multivariate regression analysis to test the proposed hypotheses. The results revealed the bank characteristics play important roles to determine the bank's performance measurement; however, those variables have less influence on the bank efficiency measurement. This empirical phenomenon has opened an interesting analysis on the behaviour of banking industry in the emerging markets, which differs from the common findings in the developed markets.