Sufian, Fadzlan and Abdul Majid, Muhamed Zulkhibri (2007): Bank Ownership, Characteristics and Performance: A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia.
Preview |
PDF
MPRA_paper_12131.pdf Download (450kB) | Preview |
Abstract
The paper investigates the performance of Malaysian Islamic banking sector during the period of 2001-2005. Several efficiency estimates of individual banks are evaluated using non-parametric Data Envelopment Analysis (DEA). Two different approaches have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e. bank size, ownership, capital, non-performing loans and management quality. The findings suggest that during the period of study, scale inefficiency dominates pure technical inefficiency in the Malaysian Islamic banking sector. We found that foreign banks have exhibited higher technical efficiency compared to its domestic peers. The second stage empirical results based on multivariate Tobit model also suggest that technically more efficient banks are larger, have greater loans intensity, and on average have less non-performing loans.
Item Type: | MPRA Paper |
---|---|
Original Title: | Bank Ownership, Characteristics and Performance: A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia |
Language: | English |
Keywords: | Islamic Banks, Data Envelopment Analysis (DEA), Tobit Regression Analysis |
Subjects: | G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages |
Item ID: | 12131 |
Depositing User: | Dr Muhamed Zulkhibri |
Date Deposited: | 12 Dec 2008 19:54 |
Last Modified: | 27 Sep 2019 05:04 |
References: | Akhigbe, A. and McNulty, J.E. (2003), “The Profit Efficiency of Small U.S. Banks,” Journal of Banking and Finance 27 (2), 307-325. Akhigbe, A. and McNulty, J.E. (2005), “Profit Efficiency Sources and Differences among Small and Large U.S. Commercial Banks,” Journal of Economics and Finance 29 (3), 289-299. Aly, H.Y., Grabowski, R., Pasurka, C. and Rangan, N. (1990), “Technical, Scale and Allocative Efficiencies in U.S. Banking: An Empirical Investigation,” Review of Economics and Statistics 72 (2), 211-218. Avkiran, N.K. (1999), “The Evidence on Efficiency Gains: The Role of Mergers and the Benefits to the Public,” Journal of Banking and Finance 23 (7), 991-1013. Avkiran, N.K. (2002), Productivity Analysis in the Service Sector with Data Envelopment Analysis. Camira: N.K. Avkiran. Bank Negara Malaysia (2001), Financial Sector Masterplan: Building a Secure Future. Kuala Lumpur: Bank Negara Malaysia Press. Bank Negara Malaysia (various issues), Bank Negara Annual Report, Kuala Lumpur Banker, R.D., Charnes, A. and Cooper, W.W. (1984), “Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis,” Management Science 30 (9), 1078-92. Barr, R. and Siems, T. (1994), “Predicting Bank Failure Using DEA to Quantify Management Quality,” Working Paper, Federal Reserve Bank of Dallas. Barr, R.S., Killgo, K.A., Siems, T.F. and Zimmel, S.A. (2002), “Evaluating the Productive Efficiency and Performance of U.S. Commercial Banks,” Managerial Finance 28 (8), 3-25. Bashir, A.H.M. (1999), “Risk and Profitability Measures in Islamic Banks: The Case of Two Sudanese Banks,” Islamic Economic Studies 6 (2), 1–24. Bashir, A.H.M. (2001), “Assessing the Performance of Islamic Banks: Some Evidence from the Middle East,” in American Economic Association Annual Meeting, New Orleans, Louisiana. Bashir, A.H.M. (2003), “Determinants of Profitability in Islamic Banks: Some Evidence from the Middle East” Islamic Economic Studies 11 (1), 31-57. Bauer, P.W., Berger, A.N., Ferrier, G.D. and Humphrey, D.B. (1998), “Consistency Conditions for Regulatory Analysis of Financial Institutions: A Comparison of Frontier Efficiency Methods,” Journal of Economics and Business 50 (2), 85-114. Berg, S.A., Forsund, F.R. Hjalmarsson, L. and Suominen, M. (1993), “Banking Efficiency in the Nordic Countries,” Journal of Banking and Finance 17 (2-3), 371-388. Berger, A.N. and Humphrey, D.B. (1997), “Efficiency of Financial Institutions: International Survey and Directions for Future Research,” European Journal of Operational Research 98 (2), 175-212. Berger, A.N. and DeYoung (1997), “Problem Loans and Cost Efficiency in Commercial Banks,” Journal of Banking and Finance 21 (6), 849-870. Berger, A.N and Humphrey, D.B. (1992), “Measurement and Efficiency Issues in Commercial Banking, in Z.Griliches, (eds.), Measurement Issues in the Service Sectors. National Bureau of Economic Research: University of Chicago Press, 245-279. Berger, A.N. and Mester, L.J. (1997), “Inside the Black Box: What Determine Differences in the Efficiency of Financial Institutions?” Journal of Banking and Finance 21 (7), 895-947. Berger, A.N. and Mester, L.J. (2003), “Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation and Dynamic Changes in Competition,” Journal of Financial Intermediation 12 (1), 57-95. Bhattacharya, A., Lovell, C.A.K. and Sahay, P. (1997), “The Impact of Liberalization on the Productive Efficiency of Indian Commercial Banks,” European Journal of Operational Research 98 (2), 332-45. Canhoto, A. and Dermine, J. (2003), “A Note on Banking Efficiency in Portugal: New Vs. Old. Banks,” Journal of Banking and Finance 27 (11), 2087-2098. Charnes, A., Cooper, W.W. and Rhodes, E. (1978), “Measuring the Efficiency of Decision Making Units,” European Journal of Operational Research 2 (6), 429-44. Charnes, A., Cooper, W.W., Huang, Z.M. and Sun, D.B. (1990), “Polyhedral Cone – Ratio DEA Models with an Illustrative Application to Large Commercial Banks,” Journal of Econometrics 46 (1-2), 73-91. Coelli, T., Prasada-Rao, D.S. and Battese, G.E. (1998), An Introduction to Efficiency and Productivity Analysis. Boston: Kluwer Academic Publishers. Cooper, W.W., Seiford, L.M. and Tone, K. (2000), Data Envelopment Analysis. Boston: Kluwer Academic Publishers. Dermiguc-Kunt, A. (1989), “Deposit Institutions Failure: A Review of the Empirical Literature,” Federal Reserve Bank of Cleveland Economic Review 25 (4), 2-18. El-Gamal and Inanoglu (2004), “Islamic Banking in Turkey: Boon or Bane for the Financial Sector,” Proceedings of the Fifth Harvard University Forum on Islamic Finance, Cambridge: Center for Middle Eastern Studies, Harvard University. El-Gamal, M.A. and Inanoglu, H. (2005), “Efficiency and Unobserved Heterogeneity in Turkish Banking” Journal of Applied Econometrics 20 (5), 641-664. Elyasiani, E. and Mehdian, S.M. (1992), “Productive Efficiency Performance of Minority and Non-Minority Owned Banks: A Non-Parametric Approach,” Journal of Banking and Finance 16 (5), 933-948. Evanoff. D.D. and Israelvich, P.R. (1991), “Productive Efficiency in Banking,” Economic Perspectives, Federal Reserve Bank of Chicago 11-32. Ferrier, G. and Lovell, C.A.K. (1990), “Measuring Cost Efficiency in Banking: Econometric and Linear Programming Evidence,” Journal of Econometrics 46 (1-2), 229-45. Fried, H.O., Lovell, C.A.K. and Eeckaut, P.V. (1993), “Evaluating the Performance of U.S. Credit Unions,” Journal of Banking and Finance 17 (2-3), 251-65. Gregoriou, G.N. and Zhu, J. (2005), Evaluating Hedge Funds and CTA Performance: Data Envelopment Analysis Approach. John Wiley: New York. Grifell–Tatje, E. and Lovell, C.A.K (1997), “The Sources of Productivity Change in Spanish Banking,” European Journal of Operational Research 98 (2), 364-80. Hababou, M. (2002), “Tutorial in DEA,” http://members.tripod.com/moezh/DEAtutorial/DEAtutorial.html (accessed on 31 June 2006). Hasan, Z. (2004), Measuring the Efficiency of Islamic Banks: Criteria, Methods and Social Priorities, Review of Islamic Economics 8 (2), 5-30. Hassan, M.K. (2005), “The Cost, Profit and X-Efficiency of Islamic Banks,” Paper Presented at the 12th ERF Annual Conference, 19th-21st December, Egypt. Hassan, M.K. and Bashir, A.H.M. (2003), “Determinants of Islamic Banking Profitability,” Paper Presented at the 10th ERF Annual Conference, 16th - 18th December, Morocco. Hasan, I. and Marton, K. (2003), “Development and Efficiency of the Banking Sector in a Transitional Economy: A Hungarian Experience,” Journal of Banking and Finance 27 (12), 2249-2271. Hughes, J.P. and Mester, L.J. (1993), “A Quality and Risk Adjusted Cost Function for Banks: Evidence on the ‘Too Big to Fail’ Doctrine,” Journal of Productivity Analysis 4 (3), 293-315. Hughes, J.P. and Mester, L.J. (1998), “Bank Capitalization and Cost: Evidence of Scale Economies in Risk Management and Signalling,” Review of Economics and Statistics 80 (2), 314-325. Hughes, J.P., Lang, W., Mester, L.J. and Moon, C.G. (1996), “Efficient Banking Under Interstate Branching,” Journal of Money, Credit and Banking 28 (4), 1043-1071. Hughes, J.P., Lang, W., Mester, L.J. and Moon, C.G. (1999), “The Dollars and Sense of Bank Consolidation,” Journal of Banking and Finance 23 (2), 291-324. Hussein, K.A. (2003), “Operational Efficiency in Islamic Banking: The Sudanese Experience,” Working Paper No. 1, Islamic Research and Training Institute (IRTI), Islamic Development Bank. Humphrey, D.B. (1985), Cost and Scale Economies in Bank Intermediation, in, Aspinwall, R., Eisenbeis, R. (eds.), Handbook for Banking Strategy. New York: John Wiley and Sons. Isik, I. and Hassan, M.K. (2002), “Technical, Scale and Allocative Efficiencies of Turkish Banking Industry,” Journal of Banking and Finance 26 (4), 719-766. Isik, I. and Hassan, M.K. (2003), “Efficiency, Ownership and Market Structure, Corporate Control and Governance in the Turkish Banking Industry,” Journal of Business Finance and Accounting 30 (9-10), 1363-1421. Jeon, Y. and Miller, S.M. (2005), “Performance of Domestic and Foreign Banks: The Case of Korea and the Asian Financial Crisis,” Global Economic Review 34 (2), 145-165. Kolari, J. and Zardkoohi, A. (1987), Bank Costs, Structure and Performance. Lexington Books: USA. Kumbhakar, S.C. and Lozano-Vivas, A. (2005), “Deregulation and Productivity: The Case of Spanish Banks,” Journal of Regulatory Economics 27 (3), 331-351. Kwan, S.H. and Eisenbeis, R. (1995), “An Analysis of Inefficiencies in Banking, Journal of Banking and Finance 19 (3-4), 733-734. Laeven, L. and Majnoni, G. (2003), “Loan Loss Provisioning and Economic Slowdowns: Too Much, Too Late?,” Journal of Financial Intermediation 12 (2), 178-197. Mester, L.J. (1997), “Measuring Efficiency at U.S. Banks: Accounting for Heterogeneity is Important,” European Journal of Operational Research 98 (2), 230-242. Metwally, M.M. (1997), “Differences between the Financial and Characteristics of Interest Free Bank and Conventional Banks,” European Business Review 97 (2), 92-98. Miller, S.M. and Noulas, A.G. (1996), “The Technical Efficiency of Large Bank Production,” Journal of Banking and Finance 20 (3), 495-509. Noulas, A.G., Ray, S.C. and Miller, S.M. (1990), Returns to Scale and Input Substitution for Large U.S. Banks, Journal of Money, Credit and Banking 22 (1), 94-108. Resti, A. (1997), “Evaluating the Cost Efficiency of the Italian Banking System: What Can Be Learned from the Joint Application of Parametric and Non-Parametric Techniques,” Journal of Banking and Finance 21 (2), 221-250. Rezitis, A.N. (2006), “Productivity Growth in the Greek Banking Industry: A Non-Parametric Approach,” Journal of Applied Economics 9 (1), 119-138. Rosly, S.A. (2005), “Islamic Banking: Doing Things Right and Doing Right Things,” Malaysian Journal of Economic Studies, 42 (1-2), 31-40 Samad, A. and Hassan, M.K. (2000), “The Performance of Malaysian Islamic Bank during 1984-1997: An Exploratory Study,” Thoughts on Economics 10 (1-2), 7-26. Samad, A., Gardner, N.D. and Cook, B.J. (2005), “Islamic Banking and Finance in Theory and Practice: The Experience of Malaysia and Bahrain,” The American Journal of Islamic Social Sciences 22 (2), 69-86. Sarker, M.A.A. (1999), “Islamic Banking in Bangladesh: Performance, Problems, and Prospects,” International Journal of Islamic Financial Services 1 (3), 15-36. Sathye, M. (2001), “X-Efficiency in Australian Banking: An Empirical Investigation,” Journal of Banking and Finance 25 (3), 613-30. Sathye, M. (2003), “Efficiency of Banks in a Developing Economy: The Case of India,” European Journal of Operational Research 148 (3), 662-671. Sealey, C. and Lindley, J.T. (1977), “Inputs, Outputs and a Theory of Production and Cost at Depository Financial Institutions,” Journal of Finance 32 (4), 1251-1266. Sherman, H.D. and Gold, F. (1985), “Bank Branch Operating Efficiency: Evaluation with Data Envelopment Analysis,” Journal of Banking and Finance 9 (2), 297-315. Whalen, G. (1991), “A Proportional Hazards Model of Bank Failure: An Examination of its Usefulness as an Early Warning Tool,” Federal Reserve Bank of Cleveland Economic Review 27 (1), 21–31. Wheelock, D.C. and Wilson, P.W. (1995), “Explaining Bank Failures: Deposit Insurance, Regulation and Efficiency,” Review of Economics and Statistics 77 (4), 689-700. Worthington, A.C. (2000), “Cost Efficiency in Australian Non-Bank Financial Institutions: A Non-Parametric Approach,” Accounting & Finance 40 (1), 75-97. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/12131 |