Title: The Determinants of Efficiency of Islamic Banks
Abstract: The paper investigates the efficiency of the Islamic banking sector in 25 countries during the period 1992-2009 using data for 78 Islamic banks. The efficiency estimates of individual banks are evaluated using the nonparametric Data Envelopment Analysis (DEA) method. The empirical findings seem to suggest that the World Islamic banks have exhibited high pure technical efficiency. During the period of study, pure technical inefficiency was found to have greater influence in determining the total technical inefficiency. Secondly, it is suggested that further analysis of the World Islamic banking sector’s efficiency should consider specific factors relating to high-income countries’ leading the efficiency over the years compared to banks operating in middle and low-income countries. The results show a positive relationship between bank efficiency and size and profitability, while a negative relationship between bank efficiency and loans intensity and capitalization. A multivariate analysis based on the Tobit model reinforces these findings specifically for profitability. The return on equity has a positive but statistically insignificant relationship with bank efficiency. The finding implies that the higher the return on equity, the higher the bank productivity growth will be.
Publication Year: 2012
Publication Date: 2012-10-15
Language: en
Type: article
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Cited By Count: 4
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