Efficiency analysis in Islamic merge bank branch using data envelopment analysis

Abstract

The process of merging three participant banks into one large bank delivers some operational issues. This paper assessed the merger of Islamic Banks in Indonesia in terms of performance evaluation to seek the best optimization strategy. The research is conducted by evaluating the operational efficiency of 50 branches from the three participant banks prior to merger for last two years. The inputs are employee number, rent cost, and the number of tellers, while the outputs are amount of deposits, amount of financing, number of transactions, and number of customers. The performance is evaluated using data envelopment analysis (DEA) and Malmquist index as the performance benchmarking tools by measuring the technical, scale efficiency and total productivity change. The results show which participant bank has a better performance, indicate area of bank branches that need to be optimized, and give recommendation about the suitable branch model for the merged bank.

Keyword:data envelopment analysis, operational efficiency, Malmquist index, merger and acquisition, bank branch network