scholarly journals Decomposition of efficiency using DEA window analysis

2018 ◽  
Vol 25 (6) ◽  
pp. 1681-1705 ◽  
Author(s):  
Fekri Ali Shawtari ◽  
Milad Abdelnabi Salem ◽  
Izzeldin Bakhit
Keyword(s):  
Influential Factors ◽  
Scale Efficiency ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Content Type ◽  
Window Analysis ◽  
Conventional Banks ◽  
Dea Window Analysis ◽  
Conventional Counterpart ◽  
Conventional And Islamic Banks

Purpose The purpose of this paper is to examine empirically the efficiency types of Islamic and conventional banks. It seeks to show whether the efficiency level of conventional and Islamic banks significantly differs from each other. In addition, it investigates the influential factors on each type of efficiency. Design/methodology/approach The paper utilises the data envelopment analysis in its windows version to estimate the efficiency scores reflecting the time variance and compares between banking models. The paper uses pure technical efficiency (TE) and scale efficiency to achieve the objective of the study. In addition, the panel data technique is adopted to assess the determinants of the efficiency of the banks econometrically. Findings The findings of panel regression initially indicate that the pure TE is higher for conventional banks compared to Islamic banks. However, the Islamic banks are more scale efficient than their conventional counterpart. Macro and micro indicators have different impacts on the both types of efficiency. However, the unique factors that show consistent influence on the efficiency types were loans/finance, non-interest income/finance/liquidity and GDP. Furthermore, the determinants are shaped differently for Islamic and conventional banks when the banking model is controlled for. Originality/value This paper examines the efficiency types using a unique window analysis approach to examine the types of efficiency with a longitudinal set of data from 1996 to 2011.

scholarly journals MARKET POWER AND EFFICIENCY OF ISLAMIC BANKING AND CONVENTIONAL BANKING IN INDONESIA

2018 ◽  
Vol 6 (2) ◽  
pp. 131
Author(s):  
Chajar Matari Fath Mala ◽  
Ahmad Rodoni ◽  
Bahrul Yaman
Keyword(s):  
Market Power ◽  
Scale Efficiency ◽  
Islamic Banking ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Economic Community ◽  
Banking Market ◽  
Asean Economic Community ◽  
Conventional Banks ◽  
Conventional And Islamic Banks

ASEAN Economic Community (AEC) of banking industry requires both Islamic and conventional banking to improve their efficiency because the competition in banking market industry will be more intense. Therefore, this study aims to identify the type of hyphotesis of industrial organization which exists in Islamic and conventional banks in order to investigate their readiness for AEC. The research sampling consists of 10 Islamic banks and 10 conventional banks from January 2009 to December 2016. To measure x-efficiency and scale efficiency, this research uses Data Envelopment Analysis (DEA). Meanwhile, the concentration is measured by Lerner index. The hypothesis is tested by using panel regression. The result shows SCP (Structure-Conduct-Performance) hypothesis is closely applied to Islamic and conventional banks because market concentration significantly influences profitability. RMP (Relative Market Power) hypothesis is also closely applied to Islamic and conventional banking, this indicates Indonesian banking has market power in determining prices and this condition makes the profit higher. RES (Relative Efficiency Structure) and SES (Scale Efficiency Structure) hypothesis do not exist in both conventional and Islamic banks because x-efficiency and scale efficiency do not affect profitability, concentration, and  market share simultaneously. Market power and efficiency researches are commonly conducted in conventional banking, however there are only a few research in Islamic banking area. The novelty of this study is the comparison between conventional and Islamic banking in the term of market structure and efficiency.

Efficiency analysis of Islamic banks in Pakistan

Humanomics ◽  
2016 ◽  
Vol 32 (1) ◽  
pp. 19-32 ◽  
Author(s):  
Muhammad Tariq Majeed ◽  
Abida Zanib
Keyword(s):  
Technical Efficiency ◽  
Design Methodology ◽  
Efficiency Analysis ◽  
Risk Exposure ◽  
Scale Efficiency ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Data Set ◽  
Content Type ◽  
Conventional Banks

Purpose – This paper aims to empirically analyze the efficiency of full-fledged Islamic banks, Islamic branches of conventional banks and conventional banks in Pakistan. Design/methodology/approach – The paper uses data envelopment analysis to measure and compare the efficiency of banks. Three measures of efficiencies such as total technical efficiency, pure technical efficiency and scale efficiency are computed to achieve the objective of the paper. Findings – Overall, full-fledged Islamic banks are less efficient in terms of total technical efficiency and pure technical efficiency than conventional banks. However, Islamic branches of conventional banks are highly scale-efficient than their counterparts. Research limitations/implications – The findings need to be supported by considering production function and risk exposure factors. Originality/value – This paper evaluates and compares the efficiency of Islamic and conventional banks by utilizing the largest available data set during 2007-2014.

Macroeconomic shocks, fragility and home financing in Malaysia: can rental index be the answer?

2018 ◽  
Vol 9 (1) ◽  
pp. 17-44 ◽  
Author(s):  
Rosylin Mohd Yusof ◽  
Farrell Hazsan Usman ◽  
Akhmad Affandi Mahfudz ◽  
Ahmad Suki Arif
Keyword(s):  
Interest Rates ◽  
Islamic Banks ◽  
Macroeconomic Shocks ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
Rental Rate ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence. Design/methodology/approach The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing. Findings This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates. Research limitations/implications This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry. Practical implications The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest. Social implications Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study. Originality/value This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

Does service quality increase the level of banks performance

2019 ◽  
Vol 38 (6) ◽  
pp. 442-454 ◽  
Author(s):  
Syed Faraz Ali ◽  
Muhammad Naeem
Keyword(s):  
Service Quality ◽  
Multiple Regression ◽  
Positive Impact ◽  
Quality Parameters ◽  
Cluster Sampling ◽  
Islamic Banks ◽  
Content Type ◽  
Banking Systems ◽  
Conventional Banks ◽  
Conventional And Islamic Banks

Purpose The purpose of this paper is to unfold the relationship between service quality and level of performance of conventional and Islamic banks. Also, it intends to uncover what are the features of service quality which can raise the level of performance either in conventional banks or Islamic banks. There is rare literature available that focused on comparative study between above stated banking systems based on emerging parameters of SERVQUAL model. Design/methodology/approach To meet the objectives of this investigation, research data has been from 450 customers who have had accounts and dealings with conventional and Islamic banks in the previous five years. The customers are selected based on cluster sampling from regional offices of conventional and Islamic banks. Findings The collected data have been analyzed by using confirmatory factor analysis (CFA) technique followed by common method variance (CMV), multiple regression test and independent sample t-test used to examine the parameters of service quality in the context of banks performance. The purpose of CFA is to find the model validity, while multiple regression and t-test is performed in order to examine the influence of service quality parameters on banks performance. Originality/value The study used compliance as a one of the emerging and unique dimension of service quality. This dimension is rarely investigated in the context of measuring the level of bank performance of conventional and Islamic banking systems. Findings reveal responsiveness and assurance is the strongest predictor of conventional banking performance. Compliance and reliability has significant and positive impact on the level of performance of Islamic banks. Moreover, the study has practical implications for the top management and stakeholders of conventional and Islamic banks to increase the level of performance by using SERVQUAL model.

Competitive conditions and market power of Islamic and conventional commercial banks

2014 ◽  
Vol 5 (1) ◽  
pp. 29-46 ◽  
Author(s):  
Hichem Hamza ◽  
Safa Kachtouli
Keyword(s):  
Southeast Asia ◽  
Market Power ◽  
Traditional Approach ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Lerner Index ◽  
Conventional Banks ◽  
Conventional And Islamic Banks ◽  
Concentration Ratios

Purpose – The expansion of the Islamic banking industry seems to accentuate the banking competition in MENA and Southeast Asia where conventional and Islamic banks coexist. In this context, the research aims\ to examine the competitive conditions and the market power of the conventional and Islamic banks during the period 2004-2009 in MENA and Southeast Asia region. Design/methodology/approach – The authors use a variety of structural and non-structural measures related to the traditional approach and the new empirical approach of the industrial organization. The methodology is based on set of measures of the competition and market power. The first measure is a set of concentration ratios (C3, C5) and Herfindahl-Hirschman index (HHI). The second measures are the Panzar and Ross H statistic and the Lerner index based on econometric estimations with the aim of evaluating the structure of market and measuring its power in terms of price setting. Findings – The results indicate that under the HHI index, both markets are low concentrated, while according to the concentration ratios, the Islamic market is considered as moderately concentrated. The estimations results, through the H-PR-statistic of Panzar and Ross related to degree of competition and the Lerner index of market power, indicate that both markets are characterized by a monopolistic competition and the Islamic banking expressed a high degree of market power. Research limitations/implications – The research focuses exclusively on the countries where the data are available and excludes the other countries where competition and market power might have different forms. Practical implications – In a competitive environment, each bank is required to analyze the structure of its market and competitive conditions, in order to develop a business strategy and effective action plans. In the context of the multiplication of the Islamic banks in the MENA and Southeast Asia, the enhancement of Islamic bank competitiveness by offering new products is determinant for their success. Originality/value – To the best of the authors' knowledge few studies have examined this subject in a comparative analysis between the Islamic and conventional banks. So the authors contribute to the literature on Islamic banking by considering a sample of Islamic and conventional banks operating in the same countries in order to examine the existence or not of difference between them.

Does the country’s religion affect the financial performance of conventional and Islamic banks? Comparative study in the international framework

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Achraf Haddad ◽  
Achraf Haddad
Keyword(s):  
Financial Performance ◽  
Generalized Method Of Moments ◽  
Developed Countries ◽  
Emerging Countries ◽  
Islamic Banks ◽  
Governance Mechanism ◽  
Content Type ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose The purpose of this study is to compare the impact of religion on the financial performance of conventional and Islamic banks in the framework of stakeholders’ theory. Design/methodology/approach Few studies have focused on studying the impact of religion on banking performance. Although religion represents an external governance mechanism for financial institutions, by using the generalized method of moments (GMM), this topic constitutes a research opportunity. The already modeled variables are collected from 76 countries located on 5 continents. The data were collected from DATASTREAM, banks’ annual reports, WIKIPEDIA and World Bank. It concerns 210 banks of each type during the period (2010–2020). Findings The author retained that religion negatively affects the financial performance of both conventional and Islamic banks. More specifically, results showed that religion affected the liquidity and solvency of two bank types. It also affected conventional banks’ profitability and efficiency of conventional banks. Research limitations/implications I summarized the theoretical contribution in the integration of a new original governance category to enhance its presence with impacts directly affecting the banks’ financial performance. Empirically, the study can be seen as a compass for all stakeholders to consider environmental, behavioral and doctrinal factors in studying the financial performance evolution and to become more competitive in the banking market. Originality/value Although conventional banks located in developed countries are different from those existing in emerging countries and Islamic banks located in developed countries are different from those existing in emerging countries, I carried out a diversified study in the global context. Referring to the comparative literature review between conventional and Islamic banks, the study was the first conditional research that compared the impacts of religion on the financial performance of conventional and Islamic banks.

Efficiency assessment of banking sector in Yemen using data envelopment window analysis

2015 ◽  
Vol 22 (6) ◽  
pp. 1115-1140 ◽  
Author(s):  
Fekri Ali Shawtari ◽  
Mohamed Ariff ◽  
Shaikh Hamzah Abdul Razak
Keyword(s):  
Panel Data ◽  
Banking Sector ◽  
Panel Data Analysis ◽  
Data Envelopment ◽  
Content Type ◽  
Window Analysis ◽  
Loan Financing ◽  
Using Data ◽  
Conventional Banks ◽  
The Stability

Purpose – The purpose of this paper is to examine the banking industry’s efficiency using the case of Yemen. Design/methodology/approach – The paper utilises two-stage analysis to evaluate the efficiency adopting Data Envelopment Window Analysis (DEWA) in the first stage for the period 1996-2011. Furthermore, the paper addresses, in two-dimensional matrix, the stability and efficiency of the banking sector in order to assess their ability for survival. In the second stage, panel data analysis is applied to regress a set of bank-specific and macro-economic variables on the efficiency of the banking sector in Yemen in a comparative fashion between Islamic and conventional banks. Findings – The findings of the investigation indicate that the Yemeni banking industry in general was on a declining efficiency’s trend with increased instability during the later period of the investigation. In addition, the study shows that most conventional banks were relatively stable, though inefficient, while Islamic banks were more efficient over the time. The results of panel data regression further suggest that efficiency is related to a number of determinants. Loan/financing, and profitability are the common key determinants of efficiency for both Islamic and conventional banks. However, other determinants have impacted differently for Islamic and conventional banks, which could reflect the uniqueness of their operation and structure. Research limitations/implications – The present study provides a basis for the regulators and bankers to assess the viability of the banking sector and proposes policies to restructure the industry in order to enhance the performance of the whole industry. Originality/value – The paper presents new empirical findings on the efficiency of Islamic and conventional banks in Yemen.

Banking stability in the MENA region during the global financial crisis and the European sovereign debt debacle

2017 ◽  
Vol 18 (4) ◽  
pp. 381-397 ◽  
Author(s):  
Naama Trad ◽  
Houssem Rachdi ◽  
Abdelaziz Hakimi ◽  
Khaled Guesmi
Keyword(s):  
Global Financial Crisis ◽  
Islamic Banks ◽  
Mena Region ◽  
Data Set ◽  
Content Type ◽  
Negative Effect ◽  
Macroeconomic Effect ◽  
Conventional Banks ◽  
The Global Financial Crisis ◽  
Conventional And Islamic Banks

Purpose This paper aims to focus on the main determinants of the performance and stability-banking sector in the Middle East and North Africa (MENA) region during the global financial crisis. Using a data set of 13 countries with both of 77 Islamic and 101 conventional banks during the period 2006-2013, empirical results show that specific variables allow explaining the change in the level of performance and stability for conventional and Islamic banks. However, the effect of some banks’ characteristics is not the same for the two bank groups. For the macroeconomic effect, it is observed that inflation exerts a negative effect on the bank performance except for conventional banks when it increases the profitability. Design/methodology/approach Using a data set of 13 countries with both of 77 Islamic and 101 conventional banks (CvB) during the period 2006-2013 and performing the generalized method of moments (GMM) method, the findings provide comprehensive evidence for the bank systems studied which are of interest also to policy makers and practitioners. Findings The main finding is that after the international financial crises of 2008, many worldwide banks have been experiencing crises in contrast to Islamic banks (IsB) which remain Gen more stable and more profitable. Foreign banks had a higher degree of exposure to risk, given their higher number of subsidiaries in the developed economies. As for the determinants of profitability, the bank-specific variables allow to explain the change in the level of performance and stability for conventional and Islamic banks. However, the effect of some banks characteristics is not the same for the two bank groups. For the macroeconomic effect, it is observed that inflation exerts a negative effect on the bank performance except for CvB when it increases the profitability measured by the return on assets (ROA). It is also found that the growth rate acts positively when the dependent variable is the ROA and negatively when the performance is measured by return on equity. Originality/value The inflation rate exerts a negative effect only on the ROA. This study differs from previous contributions in that it is tested the hypothesis of determinants of bank profitability and stability for both conventional and Islamic banks in the MENA region. It is of great interest to both policymakers and investors, with respect to regional development policies and dedicated portfolio investment strategies in each emerging region respectively. The authors adopted several ratios from the empirical literature on bank profitability and stability. Using a data set of 13 countries with both of 77 Islamic and 101 CvB during the period 2006-2013 and performing the GMM method, the findings have significant contributions to the literature by comprehensively clarifying and critically analyzing the current state of profitability and stability for both banks.

Efficiency, productivity and Islamic banks: an application of DEA and Malmquist index

Humanomics ◽  
2015 ◽  
Vol 31 (1) ◽  
pp. 118-131 ◽  
Author(s):  
Muhammad Abbas ◽  
Rayan S Hammad ◽  
Mohamed Fathy Elshahat ◽  
Toseef Azid
Keyword(s):  
Malmquist Index ◽  
Productivity Index ◽  
Scale Efficiency ◽  
Productivity Change ◽  
Islamic Banks ◽  
Efficiency Change ◽  
Lower Growth ◽  
Content Type ◽  
Future Policy ◽  
Conventional Banks

Purpose – This paper aims to compute the Malmquist Index of Islamic and conventional banks to compare their performance in the sample period of 2005-2009. Islamic banks have been showing tremendous growth throughout the world in recent past. Their progress is exceptional in Islamic countries on account of patronization for religious reasons. There existed vacuum in research of their productivity change over the years. Design/methodology/approach – This study tries to apply the Malmquist Index. The Malmquist Total Factor Productivity Index has been further divided into Efficiency Change Index, Technological Change Index, Pure Efficiency Change Index and Scale Efficiency Change Index to obtain an insight about the reasons for the change in productivity. Findings – Results indicate that the productivity of Islamic banks decreased in 2007 but it increased in 2008 to 2009. Islamic banks had higher productivity growth from 2005 to 2006, but they experienced lower growth in subsequent years as compared to their conventional counterparts. Research limitations/implications – Data were not available before 2005 in Pakistan. Practical implications – This study is helpful for the investors and bankers for formulating the future policy. Social implications – This study also provides a guideline for establishing the ethical financial institutions. Originality/value – This is an original attempt.

FDI inflows and bank deposits: evidence from 18 MENA economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulazeez Y.H. Saif-Alyousfi
Keyword(s):  
Islamic Banks ◽  
Dynamic Panel ◽  
Fdi Inflows ◽  
Content Type ◽  
Estimation Techniques ◽  
Mena Countries ◽  
Bank Deposits ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose This paper aims to examine and compare the impact of foreign direct investment (FDI) inflows on bank deposits in aggregate as well as at the level of conventional and Islamic banks in Middle East and North Africa (MENA) countries. The study also tests hypotheses of direct and indirect impacts of FDI flow and FDI stock on bank deposits. Design/methodology/approach Static and dynamic panel generalized methods of moments (GMM) estimation techniques are applied to analyze a large data set of 491 commercial banks (422 conventional banks and 69 Islamic banks) across 18 MENA countries between 1993 and 2017 (12,275 year observations). Findings Empirical results indicate that inflowing FDI flow and FDI stock have a significant negative direct impact on deposits of MENA banks. The results lend support for the direct channel hypothesis for the effect of FDI on bank deposits and find no evidence in support of the indirect channel hypothesis. FDI inflows affect bank deposits directly via increased FDI-related excessive competition in the banking market. Deposits from conventional banks appear to be more affected than those from Islamic banks. The variation may due to the fact that Islamic banks have fewer multinational corporations (MNC) customers than conventional banks and therefore are less sensitive to fluctuations in FDI. Practical implications From this analysis, this study concludes that foreign investments have a higher productivity than local investments in MENA region. Attracting more FDI is aimed at increasing overall national productivity through competition. However, governments would be wise to enact such a policy to maximize benefits and minimize potential harm to local industry. Furthermore, FDI policy should encourage small to medium-size banks and firms (SMEs)’ participation and linkage with multinational banks and MNCs, while upgrading research and development institutions and innovation activities to help SMEs to benefit from potential spillovers from foreign presence in the industry. In addition, the linkage and connection between SMEs and foreign firms should be strengthened and promoted by government policy. Originality/value This study is the first of its kind to examine the effect of FDI inflows on bank deposits. It also provides an in-depth quantitative analysis of the impact of FDI flow and FDI stock, separately, on bank deposits for both conventional and Islamic banks. It distinguishes between direct and indirect channels through which FDI inflows may affect bank deposits. The study analyzes 25 years of panel data for 491 banks (12,275 year observations) and uses both static and dynamic panel GMM estimation techniques to analyze the data.

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