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Article
Publication date: 3 August 2012

Jamal Ali Al‐Khasawneh, Karima Bassedat, Bora Aktan and Priya Darshini Pun Thapa

The purpose of this paper is twofold. The first and the most important is to examine the efficiency of Islamic banks relative to conventional banks operating in North African Arab…

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Abstract

Purpose

The purpose of this paper is twofold. The first and the most important is to examine the efficiency of Islamic banks relative to conventional banks operating in North African Arab countries, in terms of cost and revenue efficiency. The second objective is to assess more evidence regarding the banking system efficiency trend and dynamics in each single country, and to compare such trends among countries included in the study.

Design/methodology/approach

The non‐parametric data envelopment analysis (DEA) was used to estimate cost and revenue efficiency scores assuming variable returns to scale (VRS). The sample consists of nine Islamic banks and 11 conventional banks.

Findings

The results indicated that Islamic banks achieved higher average revenue efficiency scores over conventional banks in this region, while the growth rate of revenue efficiency score of Islamic bank was less than conventional banks. In terms of cost efficiency, the results varied from country to another. The results also showed that both groups of banks were close to each other, with an advantage to conventional banks, which suffer less cost efficiency loss over time compared to Islamic banks.

Research limitations/implications

The very limited data sources (banks' web sites) was was the main limitation faced during preparing for this research. Another limitation was the non‐regularity of annual reports.

Practical implications

Islamic banks are highly challenged in finding investment opportunities/avenues that comply with Islamic regulations, unlike conventional banks that can invest in fixed income securities. There is a serious need for some countries to deregulate their banking systems more, in order to enhance the compatibility and the efficiency of their banking, such as the case of Sudan.

Originality/value

Given the previously mentioned difficulties, decent data set were collected. The value of this paper is the use of nonparametric DEA to analyse cost and revenue efficiences in the countries of this region.

Details

Qualitative Research in Financial Markets, vol. 4 no. 2/3
Type: Research Article
ISSN: 1755-4179

Keywords

Article
Publication date: 1 August 2001

Athanasios G. Noulas

Outlines the deregulation of banking in Greece and previous research on measuring banking efficiency. Uses 1993‐1998 data to assess the effects of deregulation on both private and…

1115

Abstract

Outlines the deregulation of banking in Greece and previous research on measuring banking efficiency. Uses 1993‐1998 data to assess the effects of deregulation on both private and state‐controlled banks. Shows that the state banks were less efficient than the private and that the gap widened during the period for both non‐interest and labour expenses as a proportion of operating income, as the private banks increased their efficiency. Finds the relative efficiency measured by data envelopment analysis supports the greater efficiency of private banks although the difference is only significant at the 5 per cent level for 1996. Compares the four most efficient banks and briefly considers the underlying reasons for the findings.

Details

Managerial Finance, vol. 27 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 4 September 2009

Fadzlan Sufian and Razali Haron

The purpose of this paper is to examine the efficiency of the Malaysian banking sector. The technique used by Oliveira and Tabak is extended by employing market data as input and…

1732

Abstract

Purpose

The purpose of this paper is to examine the efficiency of the Malaysian banking sector. The technique used by Oliveira and Tabak is extended by employing market data as input and output variables to individual bank stocks, which are listed on the Kuala Lumpur Stock Exchange (KLSE). By doing this, the paper aims to broaden the scope of the existing studies by employing individual bank market data to measure their efficiency levels.

Design/methodology/approach

The paper utilizes the non‐parametric data envelopment analysis methodology to measure the efficiency of banks which are listed on the KLSE. While previous bank efficiency studies have used balance sheet and income statements data, this paper uses individual bank's market data as the input and output variables to construct the efficiency frontier.

Findings

The main conclusion of this paper is that the most efficient bank is also highly ranked in terms of returns with relatively low standard deviation and beta. The results also suggest that all the banks which have managed to appear on the efficiency frontier are mainly based on the relatively higher mean returns rather than lower standard deviations and/or beta.

Research limitations/implications

The approach used in this paper could also be used to other economic sectors, as well as from a multiple countries perspective as this approach allows the comparison of different countries, which have different accounting rules and are not comparable by using standard models. The approach could also be extended to incorporate other input(s) and/or output(s) which could further add to the robustness of the results.

Originality/value

The contribution of the paper consists of proposing a new approach to the measurement of bank efficiency.

Details

International Journal of Commerce and Management, vol. 19 no. 3
Type: Research Article
ISSN: 1056-9219

Keywords

Open Access
Book part
Publication date: 4 May 2018

Anwar Puteh, Muhammad Rasyidin and Nurul Mawaddah

Purpose – The purpose of the research is to analyze the efficiency of Islamic banks in Indonesia. The data used in this research are panel data observed from 2012 until 2016. The…

Abstract

Purpose – The purpose of the research is to analyze the efficiency of Islamic banks in Indonesia. The data used in this research are panel data observed from 2012 until 2016. The sampling of this research is conducted on five Sharia banks in Indonesia, that is, Bank Muamalat, Bank SyariahMandiri, BukopinSyariah, BRI Syariah, and Bank Mega Syariah.

Design/Methodology/Approach – The study uses a quantitative method to analyze the efficiency of Sharia banking with formulation of comparison of operating expenses to operating revenues (BOPO).

Finding – The result of this research concludes that Sharia banking in Indonesia has not been efficient during the last five years, that is, 2012–2016. This can be seen from the range of banking efficiency ratio. The average level of Islamic banking efficiency ranges between 89.73% and 94.16%. Bank Muamalat whose range is 94.16% shows the highest average efficiency ratio compared to other Sharia banks. Meanwhile, Bank Mega Syariah maintains the lowest average efficiency ratio that is 89.37%. The five Sharia banks have a high efficiency ratio of over 80%. This shows that Sharia banking in Indonesia is inefficient

Originality/Value – The bank should be able to balance between cost (cost) and revenue. Sharia banks must also be able to create good product innovation in order to increase the collection of funds from the community, such as for competitive outcomes, prizes, or other programs that raise public interest to use the services of Sharia banking.

Research Limitations/Implications – This inefficiency is due to the high bank operating costs compared to the bank’s operating income.

Details

Proceedings of MICoMS 2017
Type: Book
ISBN:

Keywords

Article
Publication date: 1 December 1998

Tser‐Yieth Chen and Tsai‐Lien Yeh

The main contribution of this paper is empirical in nature. We use data envelopment analysis to evaluate the relative efficiency of 34 commercial banks in Taiwan. Fifteen banks

4239

Abstract

The main contribution of this paper is empirical in nature. We use data envelopment analysis to evaluate the relative efficiency of 34 commercial banks in Taiwan. Fifteen banks are identified as efficient ones and they are divided into four sub‐groups. Conversely, 19 banks are attributed as inefficient ones and the slack analysis are followed. The inefficient banks can effectively promote resource utilization efficiency by better handling their labour and capital operating efficiency and enlarging bank investment function. In addition, we compare the data envelopment analysis results to the financial ratios and show that a consistent effect cannot be obtained. This is to say that we cannot derive which bank has a higher performance from financial ratio analysis only.

Details

International Journal of Service Industry Management, vol. 9 no. 5
Type: Research Article
ISSN: 0956-4233

Keywords

Article
Publication date: 1 January 1997

Michel Dietsch

Major structural changes have affected the French banking industry during the second half of the 1980s, what suggests that the French banks were operating with a significant level…

Abstract

Major structural changes have affected the French banking industry during the second half of the 1980s, what suggests that the French banks were operating with a significant level of inefficiencies before this period. The purpose of this study is to present estimates of X‐Efficiencies and Scale‐Efficiencies in French banks for the 1988–1992 period which followed this wave of changes. The data are annual accounting data for corporate, mutual and savings banks. The sample contains 375 depository banks. By using the “distribution free” method of efficiency estimation, our estimations show that average X‐efficiencies of the French banks are in the range of 70% to 90%. Our results confirm also the existence of scale economies in French banking industry. Scale efficiency estimates show clearly that French banks could reduce average costs by about 15% on average by increasing size in order to reach the efficient size. Note that this result is also in conformity with the hypothesis that some excess capacity could exist in French banking industry.

Details

Managerial Finance, vol. 23 no. 1
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 26 February 2024

Ayman Issa, Ahmad Sahyouni and Miroslav Mateev

This paper aims to examine how the diversity of educational levels within bank boards influences the efficiency and stability of banks operating in the Middle East and North…

Abstract

Purpose

This paper aims to examine how the diversity of educational levels within bank boards influences the efficiency and stability of banks operating in the Middle East and North Africa (MENA) region. Unlike previous studies, this analysis also investigates the role of board gender diversity in moderating the relationship between board educational level diversity and bank efficiency and financial stability in MENA.

Design/methodology/approach

In this study, a sample of 77 banks in the MENA region spanning the years 2011 to 2018 is used. The relationship between the presence of highly educated directors on the board, bank efficiency and stability is assessed using the ordinary least squares method. Additionally, the authors use the Generalized Method of Moments technique to correct endogeneity problem.

Findings

This study establishes a positive association between the presence of directors with advanced educational backgrounds on bank boards and bank efficiency and stability. Furthermore, the inclusion of women on the board strengthens this relationship.

Practical implications

These findings have important implications for policymakers and regulators in the MENA region, suggesting that promoting diversity policies that encourage the participation of highly educated directors on bank boards can contribute to enhanced efficiency and financial stability. Policymakers may also consider implementing quotas or guidelines to improve gender diversity in board appointments, thereby fostering bank performance in the region.

Originality/value

This study stands out for its innovation and distinctiveness, as it delves into the connection between board educational level diversity and bank efficiency in the MENA region. Notably, it surpasses previous research by investigating the moderating role of board gender diversity, thus offering valuable insights into the complex interplay between these two facets of board diversity. This contribution enriches the existing literature by providing novel perspectives on board composition dynamics and its influence on bank efficiency and stability.

Details

Corporate Governance: The International Journal of Business in Society, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1472-0701

Keywords

Article
Publication date: 2 November 2023

Lan-Huong Nguyen, Tu D.Q. Le and Thanh Ngo

This paper aims to investigate the efficiency and performance of the Islamic banking industry amid the COVID-19 pandemic.

Abstract

Purpose

This paper aims to investigate the efficiency and performance of the Islamic banking industry amid the COVID-19 pandemic.

Design/methodology/approach

The authors used a two-stage data envelopment analysis to first estimate the efficiency of 78 Islamic banks (IBs) across 15 countries for the 2005–2020 period (a total of 782 bank-year observations) and then to examine their determinants, including the COVID-19 pandemic.

Findings

The authors found that the Islamic banking industry performed at a moderate level during the 2005–2020 period, providing evidence that IBs are resilient to the financial shocks created by COVID-19. The authors also found that bank-level characteristics (such as bank size) and country-level characteristics (such as inflation) can contribute to the bank’s operational efficiency.

Research limitations/implications

The results of this study suggested that banking management and government macroeconomic policy, especially in terms of precautions and continuous support, are important for IBs to improve their performance.

Originality/value

To the best of the authors’ knowledge, this is the first study to examine the efficiency and performance of IBs amid COVID-19.

Details

Journal of Islamic Accounting and Business Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 12 December 2023

Bhavya Srivastava, Shveta Singh and Sonali Jain

The present study assesses the commercial bank profit efficiency and its relationship to banking sector competition in a rapidly growing emerging economy, India from 2009 to 2019…

Abstract

Purpose

The present study assesses the commercial bank profit efficiency and its relationship to banking sector competition in a rapidly growing emerging economy, India from 2009 to 2019 using stochastic frontier analysis (SFA).

Design/methodology/approach

Lerner indices, conventional and efficiency-adjusted, quantify competition. Two SFA models are employed to calculate alternative profit efficiency (inefficiency) scores: the two-step time-decay approach proposed by Battese and Coelli (1992) and the recently developed single-step pairwise difference estimator (PDE) by Belotti and Ilardi (2018). In the first step of the BC92 framework, profit inefficiency is calculated, and in the second step, Tobit and Fractional Regression Model (FRM) are utilized to evaluate profit inefficiency correlates. PDE concurrently solves the frontier and inefficiency equations using the maximum likelihood process.

Findings

The results suggest that foreign banks are less profit efficient than domestic equivalents, supporting the “home-field advantage” hypothesis in India. Further, increasing competition drives bank managers to make riskier lending and investment choices, decreasing bank profit efficiency. However, this effect varies depending on bank ownership and size.

Originality/value

Literature on the competition bank efficiency link is conspicuously scant, with a focus on technical and cost efficiency. Less is known regarding the influence of competition on bank profit efficiency. The article is one of the first to examine commercial bank profit efficiency and its relationship to banking sector competition. Additionally, the study work represents one of the first applications of the FRM presented by Papke and Wooldridge (1996) and the PDE provided by Belotti and Ilardi (2018).

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 12 September 2022

Zhizhen Chen, Frank Hong Liu, Jin Peng, Haofei Zhang and Mingming Zhou

We examine whether loan securitization has an impact on bank efficiency. Using a sample of large US commercial banks from 2002 to 2012, we find that bank loan securitization has a…

Abstract

We examine whether loan securitization has an impact on bank efficiency. Using a sample of large US commercial banks from 2002 to 2012, we find that bank loan securitization has a significant and positive impact on bank efficiency, and this relationship is stronger for banks with higher capital ratios, higher default risk, and lower level of liquidity and diversification. Our results are robust to Heckman self-selection correction and difference-in-difference (DID) analysis. In addition, these results are found mainly in non-mortgage loan securitizations but not in mortgage loan securitizations. Finally, we show that loan sales also have a positive impact on bank efficiency.

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