Efficiency Of Islamic Banks Research Articles

Performance Efficiency of Islamic Banks in Pakistan: An Application of CAMEL Model

This paper aims at evaluating the soundness of Islamic banks working in Pakistan for the period 2008 to 2015. The current study comprises of five full fledge Islamic banks, actively working in Pakistan. The study applied CAMEL parameters to achieve its purpose. It has utilized capital adequacy, Asset quality, Management ability, Earnings ability and liquidity ratios of selected banks. The findings of the study show that although Islamic banks in Pakistan have adequate capital, yet they have limited asset management ability and substandard earnings ability during the selected time period. The study also depicted that Islamic banks have high degree of liquidity thus enjoying low bankruptcy risk. The findings of this study is of prime interest for the management and shareholders of the selected banks. On one hand, the results of this study provide an insight into the performance of these banks. On the other hand, the results also contain useful information for managers and policy makers as they could find and correct easily, the weak areas of their respective institutions.

Technical Efficiency Determinants of Islamic Banks: How Do Countries Differ

Purpose: This paper analyzes the determinants of technical efficiency of Islamic banks in eight of the Islamic countries. These include Brunei Darussalam, Jordan, Indonesia, Pakistan, Malaysia, Turkey, Saudi Arabia, and the UAE. Design/Methodology/Approach: A quarterly panel data on eight Islamic countries’ banks during the period of 2014 to 2019 is used for the analysis. Findings: The overall outcomes of the study indicate that banks in KSA, UAE, and Malaysia are found to be more efficient than their counterparts in other five countries in the sample. Banks from KSA and UAE have the same average technical efficiency scores while banks in Malaysia and Jordan tend to share similar average technical efficiency scores. Findings of the study reveal that variables like bank size, return on equity, and liquid asset ratio have a positive and significant bearing while factors like GDP growth rate, Z-score, and capital adequacy ratio have a negative and significant impact on technical efficiency of Islamic banks. Implications/Originality/Value: The study puts forward some useful policy implications both for managers of banks and policymakers of countries in the sample.

Does bank governance affect risk and efficiency? Evidence from Islamic banks in GCC countries

PurposeThe motivation of the study is to shed further light on the question of whether the governance structure of Islamic banks (IBs) has an impact on the efficiency and risk of Islamic banks operating in the Gulf Cooperation Council (GCC) after the global financial crisis and during the period 2010–2018. This study aims to examine the extent of governance structure on the efficiency and risk of IBs as the effect of the financial crisis has been less on IBs. In addition, the authors are interested in the GCC region as it represents the hub of Islamic finance.Design/methodology/approachIn this study, the authors examine how the banking governance structure affects the risk-taking and performance of IBs in the GCC countries between 2010 and 2018. The authors construct a banking governance index (CGI) composed of sub-indices for the board structure, risk management, transparency and disclosure, audit committee, Sharia supervisory board and investment account holders. Unlike the majority of previous studies, bank performance is measured with technical efficiency scores using a data envelopment analysis and the authors use a comprehensive CGI.FindingsThe results show that IBs in GCC countries adhere to 54% of the attributes covered in the CGI. The authors also note a lack of disclosure regarding the investment account holders and the audit committee. As well, the results indicate that bank governance is positively associated with risk-taking and bank efficiency. Banking risk is influenced by the Sharia board and risk management while bank efficiency is affected by the characteristics of the board structure and investment account holders.Originality/valueTo the best of the authors’ knowledge, this is the first study that has developed a comprehensive governance index for IBs in GCC countries that includes a wide range of governance dimensions. The study contributes to the literature on governance in the banking sector by simultaneously examining its impact on the risk-taking and efficiency of IBs and recognizes the dynamic relation between these three variables for IB.

COMPARATIVE ANALYSIS OF THE EFFICIENCY OF ISLAMIC BANKING IN INDONESIA BEFORE AND DURING COVID-19 PANDEMIC

In 2019, COVID-19 starts to become a global emergence and keeps spreading all over the world. It has begun to enter Indonesia in February 2020 and has developed the social restriction and lockdown policy that leads to the decline in the economy. In contrast, the Islamic banking industry has escalated marginally in the past century. As a business entity, Islamic Banking has to maintain its business performance, one of which is by measuring the efficiency of the bank. The aim of this study is to analyse whether the Islamic Banking industry is disrupted by the occurrence of the COVID-19 pandemic, by measuring the efficiency of Islamic Banking. This study uses the Data Envelopment Analysis method with Variable Return to Scale model in output orientation. The variables used are based on the Intermediation approach which are Third Party Funds with Total Assets for the input, and Financing with Operating Income for the output. The samples are from all of the Islamic Banks in Indonesia in 2019-2021 except PT Bank Net Indonesia Syariah (total of 13). After calculating the efficiency, to see whether there is a difference between the Islamic Banks' efficiency before and during the COVID-19 pandemic, the Kolmogorov-Smirnov and Mann-Whitney U Test are used. The result of this study is that the Islamic banks in Indonesia have not been efficient both before and during the COVID-19 Pandemic, with a score of 68,12% for before and 69,64% for during pandemic. Moreover, the correlation analysis using the Mann-Whitney U test result indicates that the efficiency score before and during the COVID-19 pandemic has no significant difference. Hence, this illustrates that the occurrence of the COVID-19 pandemic didn’t affect the Islamic Banking industry in Indonesia, particularly on their efficiency.

Analysis Efficiency of Sharia Commercial Banks in Indonesia

Indonesia has the potential to become a leader in the development of the Islamic financial market in the world with majority population is Muslim. The Corona Virus Disease 2019 (Covid-19) pandemic has caused decrease in economic growth. However, the distribution of financing by Islamic banks in 2020 increased. With the current progress of the Islamic banking institution in Indonesia, it is necessary to estimation the efficiency level of Islamic banks and the impact of technology on the efficiency of Islamic banks. This research will analyze the efficiency from sharia commercial bank and the effect of internal factors and technology on efficiency. This research will used annual data from sharia commercial bank in 2014 to 2020. To analyze of efficiency will be used Data Envelopment Analysis (DEA) method and used Tobit method to analyze the effect of internal factors and technology on efficiency. In general, the efficiency of sharia commercial bank in Indonesia has a fluctuative tren in 2014-2020. The estimation results of tobit method is return on assets (ROA) has significantly contributing positive effects to efficiency. Meanwhile, technology has significantly contributing negative effect to efficiency.

Study of Efficiency of Islamic Commercial Banks in Indonesia through the Role of Capital and Liquidity: Two-Stage Data Envelopment Analysis

In measuring efficiency in a company which is also often used in the banking industry, namely the DEA (Data Envelopment Analysis) method which compares input and output variables and is one of the optimization methods of mathematical programs. This study will examine the efficiency level of Islamic banking in Indonesia during the 2016-2020 period and see the role of capital and liquidity or their influence on the efficiency level of Islamic banking. The method used is a quantitative method using a non-parametric approach (DEA) and a parametric approach using the Tobit Regression method to see the effect of capital and liquidity. The results show that Islamic Commercial Banks (BUS) in Indonesia have not operated efficiently based on the average efficiency score obtained by the DEA method during the period 2016 to 2020, which is 0,911. Furthermore, the results of the study show that capital and liquidity can build the efficiency level of Islamic Commercial Banks in Indonesia.

Protection of Bank's Wealth: How is Islamic Banks's Financial Performance Affected by Asset Quality and Operational Efficiency

Islamic banks are recognised as entities which support social objectives as well as economic development of the country. Financial performance of the global Islamic banking and finance has shown promising growth as equal to well-established conventional banks. The study aims to investigate the effect of asset quality and operational efficiency on the financial performance of Islamic banks in Malaysia. The study uses panel data analysis, whereby the annual reports of 16 Islamic banks in Malaysia are analysed over a ten-year period from 2010 to 2019. The independent variables of the study are asset quality and operational efficiency. The dependent variable of the study is financial performance proxied by Return on Asset (ROA) and Return on Equity (ROE). Multiple regression models consisting of random-effect model and fixed-effect model are employed to analyse the data of the study. The findings of the study show that both asset quality and operational efficiency of Islamic banks have a significant influence on the financial performance proxied by ROA and ROE. Hence, the findings of the study evince the importance of proper management practices in protecting the wealth, as well as the financial performance of the Islamic banks.

Zakat Intermediaries and Its Impact to Industry Growth: Growth Accelerators or Cost Center?

This study aims to determine the effect of Islamic bank’s activity as a zakat intermediator on profitability, efficiency, market share, and growth of Islamic banks in Indonesia. This research also analyses from the literature the possibility of zakat as the funding or financing product. The method used is the panel data method and granger causality. The Independent variable external zakat collection while the dependent variables are ROA, BOPO, Market Share, and Growth. The samples of the research are five Islamic Bank who has done the external zakat collection. The data used are quarterly data with a period from 2013 to 2020. The results of this study indicate that this divine role increase the cost of operation and in the same time decreasing the profitability. The result also stated that the intermediating activities of zakat collection is not significant to push the bank market share, profitability as well as the Bank Growth. However, although in terms of regulation bank cannot be the Amil, in the future, there is potential of zakat can push the Islamic market share and bank growth since the zakat collection, Islamic bank can offer third party funding product as the intermediation between the zakat payer and the Amil zakat whose eligible to collect zakat according to the government regulation.

An Investigation on Sharia Governance in Islamic Banking A Case of Islamic Banks in Oman

The concept of Sharia governance in Islamic banks in Oman was highlighted by presenting the conceptual framework for Sharia governance and regulating the Islamic banks through Sharia governance. Finally, the study explains the role of Sharia governance in raising the efficiency of Islamic banks. As this research paper concluded that Sharia governance has a major role in Islamic banks, through the existence of a Sharia supervisory body on all transactions that take place inside these banks, which prevents the occurrence of any activities that violate the provisions of Islamic law, as happens in other banks.
 The Sharia Supervisory Board for Muzn is the highest authority in the bank with regard to all matters related to Islamic law. It ensures that the commission’s decisions are strictly followed. The Sharia Supervisory Board reviews product papers, structures, policies, and legal documents and all other tasks. The board also provides decisions based on Sharia in all matters and related banking issues, including opinion on all aspects of the bank's commitment to Islamic law. The findings indicated that Sharia governance laws must be applied by Islamic banks and they need to make updates through the SSB and AAOIFI boards. Sharia was found to be a regulatory and supervisory component that Islamic banks must operate under to ensure the religion has been applied within the establishment of the banks.

Analisis Efisiensi Perbankan Syariah Pada Masa Pandemi Covid-19 Menggunakan Data Envelopment Analysis (DEA)

This study aims to determine the efficiency of Islamic banking in the face of a pandemic at BRI Syariah, BJB Syariah, BCA Syariah and Bank Syariah Bukopin. This study uses quantitative data using secondary data from the monthly financial reports of Islamic banks for 2020 at BRI Syariah, BJB Syariah, BCA Syariah and Bank Syariah Bukopin. This study uses Data Envelopement Analysis (DEA). The variables in this study use the input variables of capital, assets, labor costs and output variables of musyarakah financing, mudharabah financing and distribution of income. The results showed that some banks initially experienced 100% efficiency and during the pandemic experienced inefficiency or experienced a decrease in efficiency. BRI Syariah must experience a decrease in efficiency (inefficiency) after the pandemic in June, July, August 2020 and November 2020 with the CRS model and the June-August 2020 VRS model. The lowest point for BRI Syariah for the CRS model is 98.70% and for the VRS model it is 99.10%. BJB Syariah must experience a decrease in efficiency (inefficiency) due to the pandemic in April 2020, decreased in the CRS in April 2020 and the VRS Model from August 2020 to November 2020. The lowest point for BJB Syariah for the CRS model is 97.00% and for VRS model at 97.80%. BCA Syariah from April 2020 to September 2020, for CRS and VRS models, it is known that there is a reduction in performance (inefficiency) from the target that should have been achieved. The lowest point for the BCA Syariah for the CRS model is 94.80% and for the VRS model it is at 95.50%. March 2020 to November 2020 Bank Syariah Bukopin CRS and VRS models were ineffective due to the pandemic. Bank Syariah Bukopin's lowest point for the CRS model is at 95.50% and for the VRS model at 95.60%.

Study the effect of Islamic derivatives during financial crises of 2008 using Translog function, a case study of Iraq

This research uses a statistical method to assess the efficiency and performance of Islamic and conventional banks. The Iraqi banks have been chosen as a case study in the period from 2006 to 2011. The data collected from, banks' financial reports, IMF database, the cost function and Seemingly Unrelated Regression were used to analyse the Iraqi bank's elasticity of substitution between inputs. It has been shown that the conventional banks in Iraq have better substitution than Islamic banks. In conclusion, the Islamic and conventional banks are exposed to a similar degree of risks, but different in nature; and the Islamic banks have less security than conventional banks to financial shocks. Since the Islamic banks cannot charge a fixed, predetermined return, and can't borrow from the financial market, so the Islamic banks could face more risk and volatile returns on their assets. The implication of that an excessive management modernization of Islamic banks is necessary to achieve a higher level of efficiency. This will give privilege for Islamic banks over the conventional bank. For conventional banks, they have to invent similar techniques to reduce cost and keep their position in the market.

NON PERFORMING FINANCING AND EFFICIENCY OF ISLAMIC BANKS IN INDONESIA

This research objective is to empirically investigate factors that decisively affect Non Performing Financing (NPF) of Islamic banks partially and simultaneously; the performance of Islamic banks through observing the efficiency by applying Data Envelopment Analysis (DEA) approach; and the intertemporal relationship between NPF and efficiency of Islamic banks by employing VAR model to test the hypothesis of 'Bad Management' and 'Bad Luck'. This research uses purposive sampling method and panel data where data collected from official website of each bank and Bank Indonesia. This study adopts quantitative research and has 72 observations from four banks in five quarterly years. An empirical evidence of this research indicates that partially FDR, ROA, and Exchange rate has negative significant influence towards NPF, while BI rate has the positive significant influence towards NPF. However, CAR and inflation has an insignificant effect to NPF. Simultaneously, all of the independent variables have the significant effect towards NPF which described by the value of 74.92%. The findings of DEA show the average value of Islamic banks in Indonesia is 92.85% which means Islamic Banks in Indonesia are not fully efficient. The finding also indicates that Islamic banks in Indonesia support the “Bad Luck” hypothesis, that the NPF and inefficiency of Islamic banks in Indonesia can be linked to external factors that are beyond management control rather than internal factors.

Global Financial Crisis and Islamic Bank Efficiency: Are Efficiencies Stable or Impacted? Evidence From Malaysian Islamic Banks

In examining the impact of the global financial crisis on loan and deposit efficiencies, Data Development Analysis (DEA) is applied in estimating the technical efficiency of loans and deposits of the Islamic of Malaysia during 2008-2013. This study found that the average loan efficiency was 0.83., 0.88, 0.87, 0.95, 1.0, and 0.94 and the deposit efficiency was 0.87, 0.94, 0.94, 0.96, 0.92, and 0.96 during 2008-213 respectively. A comparison of two efficiencies found deposit efficiency dominated the loan efficiency. Second, in testing stability of the efficiencies, this paper used both parametric and the non-parametric tests, as suggested by Jarque Bera Test. Results of parametric test,( ANOVA F-test, t-test, and Welch F-test, and the non-parametric tests, Wicoxon/Mann-Whitney, Median Chi-square, performed on loans and deposits between the global financial crisis period and the post global financial crisis period, found no significant differences between efficiencies of the two period. The failure to reject the null hypothesis of the equality of the mean and median efficiencies between the global financial crisis and the post global financial crisis period suggests that the efficiencies of the Islamic banks of Malaysia are stable. The global financial crisis had no impact on the technical efficiencies of the Islamic banks of Malaysia.

Risk, efficiency and financial performance in the GCC banking industry: Islamic versus conventional banks

PurposeThe purpose of this study is to critically evaluate how conventional and Islamic banks trade off risk, efficiency and financial performance in their business models, to investigate how patterns of risk and efficiency vary between conventional and Islamic banks and to critically evaluate how the profitability of conventional and Islamic banks varies following the financial crisis.Design/methodology/approachThis study uses univariate and multivariate statistical techniques by investigating 12 Islamic banks and 34 conventional banks operating in the Gulf Cooperation Council (GCC) region has been studied over the period 2011–2018.FindingsThe results suggest that Islamic and conventional banks differ not in the levels of efficiency, risk and profitability, but rather in how risk and efficiency influence banks’ financial performance. Islamic banks are found to be less influenced by the adverse effects of credit risk, which is consistent with the risk-sharing nature of Islamic financing. However, the results only hold for return on assets (ROA) and return on equity (ROE) while the net interest margin is observed to be negatively influenced by credit risk. Lower cost-income efficiency is also found to boost ROA and ROE of Islamic banks which could be attributed to a larger share of non-interest revenues due to Sharīʿah-compliance.Research limitations/implicationsFrom a theoretical point of view, this study helps to understand the risk, efficiency and financial performance of Islamic banks in comparison with conventional banks.Practical implicationsThe results of this study can serve bank managers, regulators and shareholders. Policymakers should encourage a more risk-sharing structure of Islamic financing as it brings less adverse effects of credit risk and increases income sustainability for Islamic banks. The present study may help bank managers to improve the financial performance of their firms by controlling risk and efficiency. The study results also have implications for shareholders and depositors of Islamic and conventional banks as they should have a predetermined position about the level of credit risk and efficiency in each banking system.Originality/valueThe foremost contribution is that this is one of the few studies to compare risk, efficiency and financial performance of Islamic and conventional banks in the GCC region. By using the latest data, this paper hopes that the findings will be more relevant than previous studies to the current situation of the banking industry in the region.

Islamic banking efficiency literature (2000–2020): a bibliometric analysis and research front mapping

PurposeThis paper aims to present a citation-based bibliometric review of Islamic banking efficiency literature from 2000 until August 2020 for analyzing the content of the literature and mapping future research directions.Design/methodology/approachUsing bibliometric citation analysis, this study reviews and examines a total of 278 documents from Web of Science (WoS) indexed sources coupled with content analysis.FindingsThe results identified that the growth of Islamic banking efficiency literature has begun to rise since 2008 with an annual growth rate of 12.5% while identifying the most influential aspects of Islamic banking efficiency literature in terms of topics, papers, authors and keywords. The outcomes of science mapping (i.e. co-citation network, bibliometric coupling and co-authorship network) reveal that there are three underlying research streams in Islamic banking efficiency literature: growth of Islamic banking efficiency literature, stability and genuineness of Islamic banking operations and the methods in Islamic banking efficiency literature.Originality/valueTo the best of the knowledge, this is the first bibliometric review paper on Islamic banking efficiency literature. It successfully unveils the scientific mapping of published WoS documents with a future research agenda also proposed based on the review outcomes. These findings can be used in efficiency-related initiatives by managers or regulators for managing Islamic bank operations worldwide.

Financial stability efficiency of Islamic and conventional banks

We examine the financial stability efficiency of Islamic and conventional banks. We employ a meta-frontier stability function approach based on stochastic frontier framework to estimate financial stability efficiency of both bank groups, drawing on a sample of Islamic and conventional banks from 28 countries over the period 2003–2018. Our study result shows that Islamic banks have 5.30% higher stability efficiency compared to conventional banks. This result is robust when we examine country-wise and geographical region-wise stability efficiency of Islamic and conventional banks.

New evidence on Islamic and conventional bank efficiency: A meta‐regression analysis

AbstractThis paper aims to conduct a comparison of the efficiency of Islamic banks (IBs) versus conventional banks (CBs) based on meta‐analysis. Empirical studies in this field, mainly in MENA or Gulf Cooperation Country regions, usually provide mixed conclusions and we do not know the reasons of this discrepancy in the results. We conduct a meta‐regression analysis (MRA) that is based on 35 studies and includes 484 estimates of efficiency scores by bank type among other characteristics. We employ Bayesian averaging technique to identify the main covariates explaining the heterogeneity of the results. Our findings suggest, first, no evidence of the superiority of one banking system over the other, neither in terms of technical, cost or profit efficiency. Second, we identify several important bank's and sample characteristics that have also important impacts on the provided efficiency estimates. Third, when we compare the studies into those who conduct a deep statistical comparison of the efficiency distributions by bank type and those who omit to do it, we find that CBs outperform IBs, suggesting a potential publication bias. Finally, with respect to the inefficiency, MRA suggests that the regions banking systems suffer from the inability of banks to maximize profit, so they are much less profitable than it should be. There are also some managerial deficiencies linked to cost minimization, rendering the region's banking system costly, compared to some deficiencies in the overall banking production process itself (technical efficiency).

EFFICIENCY VS THE MAQASID SHARIAH INDEX: A COMPARATIVE STUDY OF CONVENTIONAL AND ISLAMIC BANKS IN INDONESIA

Over the last few years, Indonesian Islamic banking has experienced positive development, but there has been a dramatic dip in the growth of the assets and deposits of commercial Islamic banks. This indicates possible inefficiencies in these banks, and the sharp decline in the growth of their assets needs to be assessed in terms of efficiency and Islamic values, which are considered to be able to enhance performance. This research examines conventional and Islamic bank performance in terms of efficiency with data envelopment analysis (DEA) and the maqasid shariah index (MSI) with simple additive weighting (SAW) analysis, using data from fourteen commercial Islamic banks and four commercial conventional banks over the period 2007 to 2018. The results show that conventional banks were more efficient than Islamic ones, except in the financial crisis period, when the efficiency of Islamic banks was higher. In addition, the maqasid shariah index of conventional banks was lower than that of Islamic ones, although the index for Islamic banks was still very low. Furthermore, the study also found that the greater the level of total assets, the higher the maqasid shariah. Keywords: banking performance, commercial islamic banks, efficiency, maqasid shariah index

The efficiency of Islamic Banks in the Southeast Asia (SEA) Region

The Islamic banking sector has become a crucial part of the global banking industry. Despite the Islamic banking industry’s encouraging growth in the Southeast Asia (SEA) region, prior studies mostly focused on Islamic banks’ efficiency in the individual country. To fill the literature gap, this study aims to measure the efficiency and productivity growth of Islamic banks in the SEA region. This study adopted the DEA technique and the Malmquist productivity index to evaluate 31 Islamic banks’ performance in SEA from 2014 to 2019. The results evidenced an improvement in efficiency and progress in productivity for the banks in the region. The findings documented better efficiency and gradual progress in productivity for Islamic banks in Indonesia, consistent efficiency for Malaysia, a significant improvement for Brunei; hence, both Thailand and the Philippines Islamic bank depicted a drop-in efficiency for 2019. The findings trigger bank managers to acknowledge the inefficiencies and their sources. Investors and policymakers may find the findings useful in observing the banks’ performance; thus, taking effective mechanism and policies to promote competent and sustainable SEA Islamic banks in the long run.

Do corporate social responsibility practices affect the relative efficiency of Egyptian conventional and Islamic banks?

PurposeThis study assesses the impact of corporate social responsibility (CSR) practices on the relative efficiency of conventional and Islamic Egyptian banks in the period 2012–2018.Design/methodology/approachA three-stage approach is adopted. First, data envelopment analysis (DEA) is used to assess the relative efficiency of Egyptian banks. Second, a CSR index is designed and used to assess the extent of aggregate CSR practices in Egyptian banks, together with their sub-dimensions. Third, a Tobit regression model is used to examine the impact of CSR on the technical efficiency of these banks.FindingsThere is no statistically significant difference between conventional and Islamic banks as regards their purely technical efficiency. Egyptian banks, on average, have achieved a medium score in their practices of CSR and conventional and Islamic banks have not shown significant differences, except in 2018. Moreover, the aggregate CSR practices positively affect the technical efficiency of Egyptian banks. The practices of the CSR sub-dimensions, apart from the community sub-dimension, also affect the banks' technical efficiency.Practical implicationsThe legislative institutions and the Central Bank should enhance CSR practices in Egyptian banks, particularly the practices related to customers and the community, in order to enhance the purely technical efficiency of these banks.Originality/valueThe paper is original in investigating the impact of CSR on banks' relative efficiency in Egypt.