Open Journal Systems

A Comparative Analysis of Financial Performance of Banking Industry in Indonesia: Conventional Versus Islamic Banks

Izza Al Ula Zakiyah Kusuma Wardhani, M. Shabri Abd. Majid, Sartiyah Sartiyah, M. Haris Riyaldi

Abstract

This study aims to compare and analyze the financial performances of conventional and Islamic banks in Indonesia. It also attempts to measure and analyze the effect of capital, financing risk, operational efficiency, liquidity, and regulatory compliance on banking financial performances. The sample in this study is the balanced panel data, comprising a cross-section of 87 conventional banks and 11 Islamic banks and a time series from 2011 to 2020 periods, which were selected using a purposive sampling technique. The secondary data are gathered from the annual reports of the banking samples. The comparative analysis and determination of factors affecting banking financial performances are examined using a different independent sample t-test and multiple panel regression, respectively. The study documented that the financial performance of conventional banks was better than that of Islamic banks. Furthermore, the study found that capital, financing risk, and operational efficiency negatively affected performance of the conventional banks, while liquidity and regulatory compliance positively influenced conventional banking performance. Comparatively, capital, liquidity, and regulatory compliance positively affected Islamic banking performance, while financing risk and operational efficiency negatively affected Islamic banking performance. These findings suggest the importance of banking management to impose different financial management policies to enhance their performances by referring to the directional effects of the determinants of the banking financial performances.

Keywords

Performance Comparison; Financial Performance; Conventional Bank; Islamic Bank.

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DOI: 10.21043/equilibrium.v11i1.17998