The Efficiency of Islamic Banking in the Balkans: The Case of BBI Bank in Bosnia and Herzegovina

The main purpose of this paper is to evaluate the relative efficiency of Islamic banking in the Balkans, i.e. in the only bank applying Islamic banking principles (the BBI Bank in Bosnia and Herzegovina) and to compare it to the relative efficiency of conventional Bosnian banks. The output-oriented data envelopment analysis (DEA hereafter) BCC methodology with two inputs (interest and non-interest expenses,) and two outputs (interest and non-interest revenues) has been applied, in the period from 2016 to 2021. Finally, the impact of the COVID-19 pandemic on both Islamic and conventional banks is discussed and managerial implications are drawn. The findings reveal that the group of large banks are most efficient in the B&H banking sector, whereas the small-sized banks are least efficient. Islamic banking noted lower efficiency than conventional banking in the B&H. This is in line with the previous studies. The scientific contribution of this article mirrors its great significance for both academic members, banking management and regulatory bodies, as well as the interested public. To the best of the author’s knowledge, this is the first empirical study that includes a glimpse of the efficiency and performance of the only Islamic bank operating in the Western Balkan as well as the first empirical study that provides a comparison between the efficiencies of Islamic and conventional banks in the period of the COVID-19 pandemic in B&H.