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The efficiency of Islamic banks: empirical evidence from the Asian countries’ Islamic banking sectors

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  • Mohamad Noor, Mohamad Akbar Noor
  • Ahmad, Nor Hayati Bt
  • Sufian, Fadzlan

Abstract

The paper investigates the efficiency of the Islamic banking sectors in four Asian countries during the period of 2001–2006. The efficiency estimates of individual banks are evaluated using the non-parametric data envelopment analysis (DEA) method. The results suggest that the Asian Islamic banks have exhibited mean technical efficiency highest of 86.5% at 2004 during study period suggesting mean input waste of 13.5%. This implies that the Islamic banks in the Asian countries could have produced the same amount of outputs by only using 86.5% of the amount of inputs they employed. The empirical findings suggest that during the period of study, pure technical inefficiency outweighs scale inefficiency in Asian countries banking sectors. Overall the results imply that during the period of study, although the Asian Islamic banking sectors have been operating at a relatively optimal scale of operations, they were relatively managerially inefficient in controlling their operating costs and utilising their resources to the fullest.

Suggested Citation

  • Mohamad Noor, Mohamad Akbar Noor & Ahmad, Nor Hayati Bt & Sufian, Fadzlan, 2010. "The efficiency of Islamic banks: empirical evidence from the Asian countries’ Islamic banking sectors," MPRA Paper 31869, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:31869
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    References listed on IDEAS

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    5. Fadzlan Sufian, 2006. "Size And Returns To Scale Of The Islamic Banking Industry In Malaysia: Foreign Versus Domestic Banks," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 14(2), pages 147-175, December.
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    7. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
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    Cited by:

    1. Mohamad Akbar Noor Mohamad Noor & Nor Hayati Bt Ahmad, 2012. "The Determinants of Islamic Banks’ Efficiency Changes: Empirical Evidence from the World Banking Sectors," Global Business Review, International Management Institute, vol. 13(2), pages 179-200, June.

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    More about this item

    Keywords

    Islamic banks; data envelopment analysis; DEA; Asia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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