Purpose – The purpose of this paper is to provide a comparative analysis on the performance of the Islamic banking sector in 16 MENA (Middle East and north Africa) and Asian countries. Design/methodology/approach – A two-stage procedure is followed to examine the efficiency of Islamic banking sectors in 16 MENA and Asian countries. First, data envelopment analysis (DEA) is used to estimate the technical, pure technical, and scale efficiency for each bank in the sample. Following previous research, an annual frontier specific to each year is constructed, as it is more flexible and thus more appropriate than estimating a single multiyear frontier for the banks in the sample. It has been pointed out that the principal advantage of having panel data is the ability to observe each bank more than once over a period of time. Nevertheless, the issue is also critical in a continuously changing business environment because the technology of a bank that is most efficient in one period may not be the most efficient in another. To an extent, this relieves also the problems related to the lack of random error in DEA by allowing an efficient bank in one period to be inefficient in another, assuming that the errors owing to luck or data problems are not consistent over time. In the second stage regression, Tobit regression is used to determine the impact of internal and external factors on Islamic banks' efficiency. Findings – The results suggest that the MENA Islamic banks have exhibited higher mean technical efficiency relative to their Asian Islamic bank counterparts. The empirical findings suggest that during the period of study, pure technical inefficiency outweighs scale inefficiency in both the MENA and Asian countries banking sectors. Banks from the MENA region were found to be the global leaders by dominating the efficiency frontier during the period of study. Positive relationship was found between bank efficiency and loans intensity, size, capitalization, and profitability. The empirical results show that technically more efficient banks are those that have smaller market share and low non-performing loans ratio. A multivariate analysis based on the Tobit model reinforces these findings. Originality/value – The paper aims to fill a demanding gap in the literature by providing the latest empirical evidence on the determinants of the performance of Islamic banks in 16 MENA and Asian countries.
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