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Bank Ownership, Characteristics and Performance: A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia

  • Sufian, Fadzlan
  • Abdul Majid, Muhamed Zulkhibri

The paper investigates the performance of Malaysian Islamic banking sector during the period of 2001-2005. Several efficiency estimates of individual banks are evaluated using non-parametric Data Envelopment Analysis (DEA). Two different approaches have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e. bank size, ownership, capital, non-performing loans and management quality. The findings suggest that during the period of study, scale inefficiency dominates pure technical inefficiency in the Malaysian Islamic banking sector. We found that foreign banks have exhibited higher technical efficiency compared to its domestic peers. The second stage empirical results based on multivariate Tobit model also suggest that technically more efficient banks are larger, have greater loans intensity, and on average have less non-performing loans.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12131.

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Date of creation: 01 Apr 2007
Date of revision: 01 Jun 2007
Handle: RePEc:pra:mprapa:12131
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