Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia

Kamaruddin, Badrul Hisham and Safa, Mohammad Samaun and Mohd, Rohani (2008): Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia. Published in: International Journal of Business and Management Research , Vol. 1, No. 1 (10 July 2008): pp. 31-48.

Abstract

This study presents new perspectives on performance evaluation of Islamic banking operations in Malaysia, by investigating for the first time, both cost and profit efficiency of full-fledged Islamic banks and Islamic window operations of domestic and foreign banks. The application of Data Envelopment Analysis (DEA) technique has provided several efficiency measures such as allocative, pure technical and scale efficiency that explain cost and profit efficiency differentials among banks. The findings of the study show that Islamic banking operators are relatively more efficient at controlling costs than at generating profits. The main contributor for cost efficiency of domestic and foreign banks comes from resource management and economies of scale respectively. These findings have implications on the reform process carried out in the aftermath of Asian financial crisis, particularly the Financial Sector Master Plan (FSMP).

• Item Type: MPRA Paper
• Language: English
• Keywords: Data Envelopment Analysis, allocative efficiency, technical efficiency, foreign banks
• Subjects: D - Microeconomics > D2 - Production and Organizations

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