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Efficiency of Islamic Banks: an Empirical Analysis of 18 Banks

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  • Donsyah Yudistira

    (Department of Economics, Loughborough University)

Abstract

Do Islamic banks perform efficiently? Although the phenomenon of Islamic banking and finance has developed significantly in recent years, only very few studies have tackled this central question. This paper provides new evidence on the performance of 18 Islamic banks over the period 1997-2000. Unlike previous studies, this paper is based on efficiency measurement in which the non-parametric approach, Data Envelopment Analysis, is utilized to analyze the technical and scale efficiencies of Islamic banking. In specifying input-output variables of Islamic banks, the intermediation approach is selected as it is in line with the principle of Islamic financial system. Overall, the results suggest that Islamic banks suffer slight inefficiencies during the global crisis 1998-9. Efficiency differences across the sample data appear to be mainly determined by country specific factors.

Suggested Citation

  • Donsyah Yudistira, 2004. "Efficiency of Islamic Banks: an Empirical Analysis of 18 Banks," Finance 0406007, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0406007
    Note: Type of Document - pdf; pages: 17
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    References listed on IDEAS

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    8. Miller, Stephen M. & Noulas, Athanasios G., 1996. "The technical efficiency of large bank production," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 495-509, April.
    9. Rezvanian, Rasoul & Mehdian, Seyed, 2002. "An examination of cost structure and production performance of commercial banks in Singapore," Journal of Banking & Finance, Elsevier, vol. 26(1), pages 79-98, January.
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    11. Donsyah Yudistira, 2002. "The Impact of Bank Capital Requirements in Indonesia," Finance 0212002, EconWPA, revised 18 May 2003.
    12. Fukuyama, Hirofumi, 1996. "Returns to scale and efficiency of credit associations in Japan: A nonparametric frontier approach," Japan and the World Economy, Elsevier, vol. 8(3), pages 259-277, September.
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    Citations

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    Cited by:

    1. 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.
    2. Shaikh, Salman & Jalbani, Amanat, 2008. "Risk Management in Islamic and Conventional Banks: A Differential Analysis," MPRA Paper 19460, University Library of Munich, Germany, revised Mar 2009.
    3. Jaouadi, Said & Ben Jazia, Rachida & Ziedi, Azza, 2011. "Comparaison de l'efficacité et l'efficience des Banques islamiques et conventionnels: cas de l'Indonésie
      [Efficiency and effectiveness comparison of Islamic and conventional banking: case of Indone
      ," MPRA Paper 57551, University Library of Munich, Germany, revised 24 Jul 2014.
    4. Shaikh, Salman, 2013. "Determinants of Islamic Banking Growth in Pakistan," MPRA Paper 53798, University Library of Munich, Germany.
    5. Metin AKTAS, 2013. "Stability of the Participation Banking Sector Against the Economic Crisis in Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 180-190.
    6. Belanès, Amel & Ftiti, Zied & Regaïeg, Rym, 2015. "What can we learn about Islamic banks efficiency under the subprime crisis? Evidence from GCC Region," Pacific-Basin Finance Journal, Elsevier, vol. 33(C), pages 81-92.
    7. Olson, Dennis & Zoubi, Taisier A., 2011. "Efficiency and bank profitability in MENA countries," Emerging Markets Review, Elsevier, vol. 12(2), pages 94-110, June.
    8. Taufiq Hassan & Shamsher Mohamad & Mohammed Khaled I. Bader, 2009. "Efficiency of conventional versus Islamic banks: evidence from the Middle East," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 2(1), pages 46-65, April.
    9. repec:nap:nijefr:2017:p:27-49 is not listed on IDEAS
    10. Serhat Yüksel & Shahriyar Mukhtarov & Elvin Mammadov, 2016. "Comparing the Efficiency of Turkish and Azerbaijani Banks: An Application with Data Envelopment Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1059-1067.

    More about this item

    Keywords

    Efficiency; Islamic Banks;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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