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Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia

Author

Listed:
  • Kamaruddin, Badrul Hisham
  • Safa, Mohammad Samaun
  • Mohd, Rohani

Abstract

This study presents new perspectives on performance evaluation of Islamic banking operations in Malaysia, by investigating for the first time, both cost and profit efficiency of full-fledged Islamic banks and Islamic window operations of domestic and foreign banks. The application of Data Envelopment Analysis (DEA) technique has provided several efficiency measures such as allocative, pure technical and scale efficiency that explain cost and profit efficiency differentials among banks. The findings of the study show that Islamic banking operators are relatively more efficient at controlling costs than at generating profits. The main contributor for cost efficiency of domestic and foreign banks comes from resource management and economies of scale respectively. These findings have implications on the reform process carried out in the aftermath of Asian financial crisis, particularly the Financial Sector Master Plan (FSMP).

Suggested Citation

  • Kamaruddin, Badrul Hisham & Safa, Mohammad Samaun & Mohd, Rohani, 2008. "Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia," MPRA Paper 10670, University Library of Munich, Germany, revised 10 May 2008.
  • Handle: RePEc:pra:mprapa:10670
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    File URL: https://mpra.ub.uni-muenchen.de/10670/1/MPRA_paper_10670.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Asma Mghaieth & Imen Khanchel El Mehdi, 2014. "The determinants of cost/profit efficiency of Islamic banks before, during and after the crisis of 2007," Working Papers 2014-107, Department of Research, Ipag Business School.
    2. Samir Srairi, 2010. "Cost and profit efficiency of conventional and Islamic banks in GCC countries," Journal of Productivity Analysis, Springer, vol. 34(1), pages 45-62, August.
    3. repec:eee:pacfin:v:46:y:2017:i:pa:p:1-13 is not listed on IDEAS
    4. Jill Johnes & Marwan Izzeldin & Vasileios Pappas, 2012. "A comparison of performance of Islamic and conventional banks 2004 to 2009," Working Papers 12893801, Lancaster University Management School, Economics Department.
    5. Saeed, Momna & Izzeldin, Marwan, 2016. "Examining the relationship between default risk and efficiency in Islamic and conventional banks," Journal of Economic Behavior & Organization, Elsevier, vol. 132(S), pages 127-154.
    6. Olson, Dennis & Zoubi, Taisier A., 2011. "Efficiency and bank profitability in MENA countries," Emerging Markets Review, Elsevier, vol. 12(2), pages 94-110, June.
    7. Ghosh, Saibal, 2014. "Risk, capital and financial crisis," MPRA Paper 65246, University Library of Munich, Germany.
    8. repec:spr:jknowl:v:8:y:2017:i:2:d:10.1007_s13132-015-0261-8 is not listed on IDEAS
    9. Azzeddine Azzam & Belaid Rettab, 2013. "Market power versus efficiency under uncertainty: conventional versus Islamic banking in the GCC," Applied Economics, Taylor & Francis Journals, vol. 45(15), pages 2011-2022, May.

    More about this item

    Keywords

    Data Envelopment Analysis; allocative efficiency; technical efficiency; foreign banks;

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations

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