Performance of Islamic and mainstream banks in Malaysia

Abstract

The study found that Islamic banking scheme (IBS) banks have recorded higher return on assets (ROA) as they are able to utilize existing overheads carried by mainstream banks. As this lowers their overhead expenses, it is found that the higher ROA ratio for IBS banks does not imply efficiency. It is also inconsistent with their relatively low asset utilization and investment margin ratios. This finding confirmed our contention that Islamic banking that thrives on interest‐like products (credit finance) is less likely to outshine mainstream banks on efficiency terms. Although Islamic credit finance products may have complied with Shariah rules, their lack of ethical content is not expected to motivate IBS banks to strive for efficiency through scale and scope economies.

Citation

Azhar Rosly, S. and Afandi Abu Bakar, M. (2003), "Performance of Islamic and mainstream banks in Malaysia", International Journal of Social Economics, Vol. 30 No. 12, pp. 1249-1265. https://doi.org/10.1108/03068290310500652