scholarly journals Bank Efficiency Analysis: Islamic Banks versus Conventional Banks in the Gulf Cooperation Council Countries 2006 - 2012

2015 ◽  
Vol 6 (4) ◽  
Author(s):  
Bukhari M. S. Sillah ◽  
Nizar Harrathi
Keyword(s):  
Gulf Cooperation Council ◽  
Efficiency Analysis ◽  
Islamic Banks ◽  
Bank Efficiency ◽  
Conventional Banks

scholarly journals A meta-crisis banking efficiency study in the MENA region

2020 ◽  
Vol 11 (9) ◽  
pp. 2087-2112
Author(s):  
Ioannis Anagnostopoulos ◽  
Emmanouil Noikokyris ◽  
George Giannopoulos
Keyword(s):  
Empirical Work ◽  
Efficiency Index ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Gulf Region ◽  
Bank Efficiency ◽  
Content Type ◽  
Conventional Banks ◽  
The Cost ◽  
Revenue Efficiency

Purpose The purpose of this paper is to comparatively examine the cost and the overlooked revenue efficiency of Islamic and commercial banks in the aftermath of the crisis, operating in nine MENA-based countries during the 2010-2017 financial period, where the established empirical work is relatively limited. The authors also update the research where they use recent data sets and they provide for a targeted, structured literature review pre- and post-crisis in the Gulf region. Design/methodology/approach The authors examine cost and revenue efficiency of 25 major Islamic banks (IBs) and 25 major conventional banks (CBs). They conduct tests on the determinants of such variables. In the first stage of the analysis, they measure efficiency by using the data envelopment analysis (DEA) technique. The analysis performs regressions where these also reveal that the bank efficiency index is influenced by various bank type-specific attributes. It also seems that tighter restrictions on bank activities are negatively associated with bank efficiency. Second stage analysis, which accounts for banking environment and bank-level characteristics, confirms these results. Findings Conventional banks are both more cost and revenue efficient than Islamic banks over the period under examination. The analysis also reveals that the bank efficiency index is influenced by bank-type attributes. Greater presence of fixed capital resources has positive effects on growth in both Islamic and conventional banking. The major constraints impeding Islamic banking growth include labour costs. The authors examine whether and how bank-type orientation affects the cost and revenue efficiency of conventional and Islamic banks. They find that post-crisis Islamic banks underperform their conventional counterparts on both accounts within a mixed banking system. Research limitations/implications This study did not include comparative data before the 2008 financial crisis. There is also a great deal of heterogeneity among Islamic banks in the samples that have been examined here and by other researchers and the constructed efficiency scores should be interpreted cautiously as divergent Islamic banks are pooled in the same samples. Practical implications This study identified factors that may help bank managers to improve their financial outlook by controlling revenue and cost efficiency profitability. These factors could as well help to understand how some indicators affect both cost and revenue efficiency, particularly in Islamic banking. It also seems that tighter restrictions on Islamic bank activities are negatively associated with bank efficiency. Islamic banks that directly compete with their conventional counterparts in the aftermath of the crisis are less efficient on both the cost and revenue frontiers. They are potentially hindered by the differential regulations of supervising authorities in dual banking systems. Social implications The authors provide recommendations regarding regulatory and other issues that are relevant to Islamic banking and further research is suggested. Findings are relevant to a variety of stakeholders (managers, policymakers and regulators). Islamic banking authorities could re-examine the benefits of partially moving to a more standardized/conventional system of banking by lifting some trading restrictions. In addition, developing and maintaining managerial skills is an indispensable instrument for the long-term endurance of any system. A related aspect is thus an effort to determine the holistic efficiency (including managerial) of Islamic banks as a guide for policymakers to improve managerial performance. Originality/value There is relatively limited empirical work that investigates the efficiency between Islamic and conventional banking in the aftermath of the crisis in the Gulf region despite the growing importance of this region on political and economic levels. The authors also examine the revenue efficiency measure often under-researched in the literature and particularly important for comparative studies. Overseas-owned banks have attained much higher infiltration levels in middle-eastern countries over the past decade. It has also been suggested that market penetration differences may also be related to bank efficiency concerns among countries and their financial systems as opposed to types of banks.

scholarly journals Effects of the Global Financial Crisis on the Agency Cost of Islamic Banks and Conventional Banks

2017 ◽  
Vol 4 (1) ◽  
pp. 44
Author(s):  
Talla M Aldeehani
Keyword(s):  
Financial Crisis ◽  
Global Financial Crisis ◽  
Gulf Cooperation Council ◽  
Agency Cost ◽  
Islamic Banks ◽  
Empirical Testing ◽  
Before And After ◽  
The Status ◽  
Conventional Banks ◽  
The Global Financial Crisis

In this paper, we investigate the effect of the 2008 global financial crisis on the agency cost (AC) of Islamic banks (IBs) and conventional banks (CBs). Many pioneering scholars (see, for example, Archer et al., 1998) have recognized fundamental differences in the capital structures and risks of IBs compared to CBs and called for more empirical testing of these issues. This effort is in response to those calls. Focusing on AC, we collected data for all Gulf Cooperation Council (GCC) banks satisfying the period from 2001-2014. The data was split into “before” and “after” the 2008 crisis. Although statistically insignificant, the analysis shows higher AC for IB compared to CBs before and after the crisis. However, we provide evidence of significant differences in AC causal models for the two types of banks. For conventional banks, only profitability factors explain variability in AC before and after the crisis. For Islamic banks, however, in addition to profitability, liquidity, deposits and financing facilities matter depending on the status of the economy. We provide further discussions, implications, and recommendations.

A Study on the Efficiency and Stability of Different Categories of Banks in Malaysia

2020 ◽  
Vol 17 (1) ◽  
pp. 1-13
Author(s):  
Zunaidah Sulong ◽  
Mohamed Hisham Yahya ◽  
Zanariah Salleh
Keyword(s):  
Production Efficiency ◽  
Economies Of Scale ◽  
Banking System ◽  
Annual Reports ◽  
Islamic Banks ◽  
Financial Health ◽  
Bank Efficiency ◽  
Stability Performance ◽  
Panel Data Regression ◽  
Conventional Banks

This paper aims to gain new insights on efficiency and stability in a dual banking system. It evaluates the efficiency level and stability performance of two types of bank operating in Malaysia, i.e. conventional and Islamic, between 2012 to 2017. The data was extracted from Central Bank of Malaysia (BNM) and annual reports of individual banks. Z-score and data envelopment analysis (DEA) were employed to evaluate bank efficiency and stability, respectively. T-test and panel data regression were used in determining the disparity in stability performance. Interestingly, the results reveal different impacts of efficiency and stability on both types of banking system. It is found that conventional banks are less likely to experience bankruptcy and have better financial health. The Islamic banks, however, are found to be inefficient and more unstable compared to conventional banks. The results suggest that Islamic banks need to capitalize the effect of leverage, cost and production efficiency and economies of scale.

scholarly journals Effects of Macroeconomics Factors toward Efficiency in Banking

JEJAK ◽  
2018 ◽  
Vol 11 (2) ◽  
pp. 390-400 ◽  
Author(s):  
Faaza Fakhrunnas ◽  
Faiza Husnayeni Nahar ◽  
Hilman Fikri Albana
Keyword(s):  
Data Envelopment Analysis ◽  
Interest Rate ◽  
Growth And Development ◽  
Financial Statement ◽  
Islamic Banking ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Bank Efficiency ◽  
Macroeconomic Factors ◽  
Conventional Banks

The main objective of this study is to analyze the effect of macroeconomic factors toward efficiency in Islamic and Conventional Banking. Banking as one of components in financial system that highly contributes to the growth and development of the economy in a country, especially after establishment of the first Islamic bank in Indonesia at the year of 1992. Afterwards, Islamic banking began to develop and start to compete with conventional banking. Hence, in order to survive and do fair competitiveness, Islamic and Conventional banking have to maintain its efficiency. This study uses the methodology of Data Envelopment Analysis (DEA). This study also analyze the macroeconomics factors namely inflation, interest rate of Bank indonesia and the growth of Gross Domestic Product (GDP) which affects the bank efficiency. Our data is obtained from annual financial statement published by each islamic and conventional bank and Bank Indonesia starting from 2007 to 2016. This study shows that conventional banks have higher efficiency than Islamic banks, while crisis in 2008 had no significant effect on the efficiency of Islamic and conventional banking. However, a decrease in the level of efficiency that occurs in conventional banking indicates that conventional banking is more sensitive to the crisis.

scholarly journals Comparative efficiency analysis of conventional banks and Islamic banks: in evidence of Pakistan

2020 ◽  
Author(s):  
Khalid Mehmood ◽  
Natalja Lace ◽  
Irena Danilevičienė
Keyword(s):  
Trend Analysis ◽  
Efficiency Analysis ◽  
Financial Ratios ◽  
Positive Trend ◽  
Islamic Banks ◽  
Comparative Efficiency ◽  
Analysis Technique ◽  
The Future ◽  
Conventional Banks

The study evaluates the comparison and efficiency of Pakistani Islamic and conventional banks. Data are collected from the reports of banks website and state bank of Pakistan for the period 2013−2017. Used financial ratios for methodology and descriptive summary, correlation and Trend for analysis technique. The analysis shows conventional banks are more liquid, solvent and less risky. According to profit-ability ratio, Islamic banks are more profitable. Trend analysis shows, both banks have positive trends, but the conventional banks disclose more efficiency and positive trend. Conventional banks are technologically advanced and extensive, but the future of Islamic banks looking bright in case of Pakistan.

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.

scholarly journals Financial Performance And Compliance With Basel III Capital Standards: Conventional vs. Islamic Banks

2013 ◽  
Vol 29 (4) ◽  
pp. 1031 ◽  
Author(s):  
Osama M. Al-Hares ◽  
Naser M. AbuGhazaleh ◽  
Ahmed Mohamed El-Galfy
Keyword(s):  
Financial Performance ◽  
United Arab Emirates ◽  
Cross Sections ◽  
Global Financial Crisis ◽  
Gulf Cooperation Council ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Basel Iii ◽  
Islamic Banks ◽  
Conventional Banks

This study is a commentary on the financialperformance and quality capital of Islamic versus conventional banks currentlyoperating in the Gulf Cooperation Council (GCC) region. In addition toassessing the financial performance of the full set of banks across various GCCcountries, the study is the first toconsider the extent to which Islamic vs.conventional GCC banks comply with the new Basel III requirements of raising betterquality capital. The study uses bank-level data for 75 (55 conventionaland 20 Islamic) banks in Kuwait, United Arab Emirates, Kingdom of Saudi Arabia,Oman, Qatar, and Bahrain. Financial ratios are used tomeasure and compare Islamic vs. conventional banks performances, and weemploy a comprehensive and the most recent sample of data available in the region, consisting of cross-sections from 2003 to 2011.The results reveal that Islamic banks are, onaverage, less efficient but more profitable, more liquid, more solvent (lessrisky), and enjoyed higher internal growth rates than conventional banks during2003-2011. The results indicate that there are statistically significant differencesbetween the two types of banks, as far as profitability, solvency, and internalgrowth rate ratios are concerned; however, there are no statisticallysignificant differences in liquidity and efficiency. The results also indicatethat banks, as a whole, appear to be largely sufficiently capitalized for BaselIII. Gulf Cooperation Council banks are well positioned to absorb higherprovisions and impairment charges given the higher capital adequacy ratiosreported by most. The Common Equity Ratio, Tier 1 Capital Ratio, and Capital AdequacyRatios (CARs), for the majority of banks in 2011, comfortably satisfy theenhanced capital requirements of Basel III. The results show that Islamic bankshave, on average, noticeably higher (and significantly different) capitalratios compared to conventional institutions. With regard to theimpact of the global financial crisis on both types of the banks, the resultsindicate that Islamic banks performed better thanconventional banks during the period 2006-2009, as the former enjoys highercapitalization, higher liquidity reserves, and also maintained stronger growthcompared to conventional banks in almost countries.Findings of this study may be useful for capital-market participants, as the full set of banks across various Gulf Cooperation Councilcountries needs to be examined before any substantive conclusions can bereached about the relative performance of Islamic versus conventional banks.Further, as the full implementation of Basel III requirements will not takeplace until 2019, the results of this study will convey information that shouldencourage banks to consider the earlier implementation of Basel III capitalrequirements in order to provide themselves with a reputational boost, as wellas a competitive advantage.

scholarly journals Bank efficiency and practice of earnings management: a study on listed commercial banks of Bangladesh

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Naznin Sultana Chaity ◽  
K.M. Zahidul Islam
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Commercial Banks ◽  
Islamic Banks ◽  
Loan Loss ◽  
Bank Efficiency ◽  
Content Type ◽  
Empirical Results ◽  
Conventional Banks ◽  
The Relationship

PurposeThe purpose of the study is to determine the relationship between bank efficiency in terms of corporate governance guidelines and the extent of practice of earnings management (EM).Design/methodology/approachArchival data of listed private commercial banks of Dhaka Stock Exchange over the period of 2007–2016 relating to corporate governance and earnings management are collected and analyzed using parametric and non-parametric methods (efficiency analysis) and applying panel regression analysis.FindingsThe same distribution pattern and have low degree of the correlation (0.248) among them. It is found that private commercial banks of Bangladesh, on average, display efficiency level of 80.84%. The average value of discretionary loan loss provision (i.e. measure of earnings management) is 0.4249 and this indicates the presence of earnings management. The relation between earnings management and efficiency score in both cases of two-step system generalized methods of moments (GMMs) and difference GMM are found to be negative. The negative coefficients (−0.7969 and −0.57) indicate that as the efficiency increases, the practice of earnings management by the private commercial bank reduces. By estimating efficiency based on corporate governance guidelines and detecting the existence of EM, the major contribution of the study is establishing the relationship between bank efficiency based on compliance with corporate governance guidelines and managerial practice of earnings management in Bangladesh. Empirical results of the study have also established the fact that the more efficient the management of the banks are, the less likely it will practice earnings management under the compliance of corporate governance guidelines in Bangladesh.Research limitations/implicationsThis research study has some limitations. Only conventional banks are considered for the study, with the exception of Islamic banks. Comparison between conventional banks and Islamic banks could have been done.Practical implicationsBased on the literature study, the effectiveness of corporate governance aligns with decreasing agency conflict, protection of shareholders' interests and restrain management from self-serving activities (i.e. practice of earnings management). The empirical results of the study established these facts. Regulators should give more emphasis on effective implementation of good governance.Originality/valueTo the best of the authors' knowledge, this may be the first to empirically determine the relationship between efficiency estimation based on corporate governance and earnings management in case of listed commercial banks of Bangladesh.

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