Fakarudin Kamarudin

Cost, Revenue and Profit Efficiency of Islamic and Conventional Banking Sector: Empirical Evidence from Gulf Cooperative Council Countries

This article examines the cost, revenue and profit efficiency levels of 74 banks (47 conventional and 27 Islamic banks) in Gulf Cooperative Council (GCC) countries over the periods 2007 to 2011. The level of efficiencies was measured using Data Envelopment Analysis (DEA) method which applied the intermediation approach. We find that, revenue efficiency seems to play the main factor leading to the lower or higher profit efficiency levels. In essence, the higher revenue efficiency only affects a higher profit efficiency levels in Islamic banks. However, the profit efficiency on conventional banks will not be affect by the higher revenue efficiency levels since the result shows the level of profit efficiency is lower than cost efficiency due to the higher revenue efficiency. In addition, the result of this study also shows that they are statistically significant difference on cost, revenue and profit efficiency between Islamic and conventional banks in GCC countries. The findings of this study are expected to contribute significantly to the existing knowledge on the operating performance of the GCC Islamic and conventional banking sector, bank’s specific management, policy makers and may also facilitate directions for sustainable competitiveness of the GCC Islamic and conventional banking sector operations in the future.

Determinants of revenue efficiency of Islamic banks: Empirical evidence from the Southeast Asian countries

Purpose - – The purpose of this paper is to examine the revenue efficiency of Islamic banks in the Southeast Asian countries. Specifically, the empirical analysis comprises Islamic banks operating in Malaysia, Indonesia and Brunei. This paper also seeks to investigate the potential internal (bank-specific) and external (macroeconomic and industry-specific) factors which influence the revenue efficiency of Islamic banks operating in Southeast Asian countries. Design/methodology/approach - – This paper used a whole gamut of domestic and foreign Islamic banks operating in Southeast Asian countries, namely, Malaysia, Indonesia and Brunei during the period of 2006-2011. The level of revenue efficiency is computed by using the data envelopment analysis (DEA) method. Following the procedure set in Banker and Natarajan (2008) and Gujarati (2002), this paper use a panel regression analysis framework based on the ordinary least square and generalized least square methods to examine the potential determinants of revenue efficiency of the Islamic banks in the sample. In addition, this paper also use a battery of parametric ( Findings - – The results indicate that the level of revenue efficiency on the domestic Islamic banks is higher compared to that of their foreign Islamic bank counterparts. The empirical findings seem to suggest that revenue efficiency has greater influence on the profit efficiency levels. It was found that the bank size, asset quality, capitalization, liquidity and management quality significantly influence the revenue efficiency of domestic Islamic banks operating in Malaysia, Indonesia and Brunei during the period under study. Research limitations/implications - – Due to its limitations, the present study may be extended in variety of ways. First, if information on input prices is available, further analysis could be performed to investigate the cost, technical and allocative efficiency. Second, interested researchers may apply the Malmquist Productivity Index method to examine the sources of total factor productivity changes of Islamic banks operating in the ASEAN countries. Third, to obtain more robust results, empirical findings from the present study could be compared to the results derived from improved statistical methods, i.e. Bootstrap DEA. Practical implications - – The empirical findings of this paper clearly call for regulators and decision-makers to review the revenue efficiency of banks operating in Malaysia, Indonesia and Brunei Islamic banking sectors. The results could also provide better information and guidance to the managers of Islamic banks, as they need to have a clear understanding on the impact of revenue efficiency on the performance of their banks. The empirical findings of this paper may also have implications for investors whose main focus is to gain higher profit from their investments. Originality/value - – The paper is the first to provide empirical evidence on the determinants of revenue, cost and profit efficiency of Islamic banks operating in Southeast Asian countries.

Assessing the Effect of Mergers and Acquisitions on Revenue Efficiency: Evidence from Malaysian Banking Sector

The article attempts to examine the effect of mergers and acquisitions (M&As) on Malaysian banks’ revenue efficiency. The data gathered in this study are divided into two event windows: the pre-merger (1995–1996) and post-merger (2002–2009) periods. The sample selected for this study comprised 34 commercial banks, including the control group of banks. We employ the Data Envelopment Analysis (DEA) method to measure the efficiency of Malaysian banks during both the pre- and post-merger periods. The results indicate that the Malaysian banks’ revenue efficiency has not significantly improved during the post-merger compared to the pre-merger period.

Efficiency of Gulf Cooperation Council Banks

Purpose – This paper aims to investigate the efficiency level of Gulf Cooperation Council (GCC) banks on technical efficiency (TE), pure technical efficiency (PTE) and scale efficiency (SE). Both PTE and SE represent the potential factors that influence the efficiency of the GCC banks. In total, 43 GCC banks were observed in this study over the period from 2007 until 2011. Design/methodology/approach – The Data Envelopment Analysis, a non-parametric method using variable returns to scale under Banker, Charnes and Cooper model, was used with assets and deposit (as input) and loan and income (as output). Findings – On average, the results show that many GCC banks are operating within an optimal scale of efficiency. Nevertheless, the results also show managerial inefficiency in the use of resources. Furthermore, the results indicate that, while the larger banks (the 22 largest) tend to operate at constant returns to scale (CRS) or decreasing returns to scale, the smaller banks (the 21 smallest) are susceptib...

Does country governance foster revenue efficiency of Islamic and conventional banks in GCC countries

Purpose – The purpose of this paper is to provide new empirical evidence on the impact of country governance on the revenue efficiency of Islamic and conventional banks. The empirical analysis is confined to Islamic and conventional banks operating in the Gulf Cooperation Council (GCC) countries banking sectors during the period of 2007-2011. Design/methodology/approach – The analysis comprises two main stages. In the first stage, the authors employ the data envelopment analysis (DEA) method to compute the revenue efficiency of Islamic and conventional banks. The authors then used the multivariate panel regression analysis with the ordinary least square and generalized method of moments as an estimation method to investigate the potential determinants and the effect of country governance on the revenue efficiency. Findings – The empirical findings indicate that greater voice and accountability, government effectiveness, and rule of law enhance the revenue efficiency of both Islamic and conventional banks....

The impact of ownership structure on bank productivity and efficiency: Evidence from semi-parametric Malmquist Productivity Index

Abstract The present study employs the state of the art bias-corrected Malmquist Productivity Index method to examine the sources of efficiency and productivity of the foreign and domestic banks operating in the Malaysian banking sector. The preferred methodology enables us to isolate efforts to catch up to the frontier (efficiency change) from shifts in the frontier (technological change [TECHCH]). The results indicate that the Malaysian banking sector has exhibited productivity progress mainly attributed to technological progress. The empirical findings suggest that both the domestic and foreign banks have exhibited productivity progress albeit at different quantum attributed mainly to progress in TECHCH.

Does productivity of Islamic banks endure progress or regress?: Empirical evidence using data envelopment analysis based Malmquist Productivity Index

This paper aims to explore the level of productivity of Islamic banks specifically in selected Southeast Asian Countries from the period 2006 to 2014. Besides, this study also investigates the potential determinants of bank-specific characteristics and macroeconomic conditions that may influence the productivity of banking sector.,The present study gathers data on the 29 Islamic banks from Southeast Asian countries, namely, Brunei, Indonesia and Malaysia. The productivity level of the Islamic banks is evaluated using the data envelopment analysis-based Malmquist productivity index method. The authors then used a panel regression analysis framework based on the ordinary least square to identify potential determinants.,The domestic and foreign Islamic banks have exhibited progress in total factor productivity change solely attributed to the increase in efficiency change (EFFCH) which were mainly managerial rather than scale related. Foreign-owned banks have been slightly more productive compared to their domestic-owned bank counterparts, attributed to a higher EFFCH but insignificantly different. Furthermore, capitalisation, liquidity and world financial crisis determinants have significantly influenced productivity level of Islamic banks.,The study on the productivity of Islamic banking is still in its formative stage. To date, very limited study has been conducted to examine the productivity level in Southeast Asian, which is a strong regional hub for Islamic banking. This study intends to fill the gaps with a specific focus on the productivity level, specifically narrowing down to Southeast Asian countries in the domestic and foreign Islamic banking sector.

The impact of globalization on the performance of Banks in South Africa

Purpose This paper aims to provide empirical evidence for the impact globalization has had on the performance of the banking sector in South Africa. In addition, this study also investigates bank-specific characteristics and macroeconomic conditions that may influence the performance of the banking sector. Design/methodology/approach The authors use data collected for all commercial banks in South Africa between 1998 and 2012. The ratio of return on assets was used to measure bank performance. They then used the dynamic panel regression with the generalized method of moments as an estimation method to investigate the potential determinants and the impact of globalization on bank performance. Findings Positive impact of greater economic integration and trade movements of the host country, while greater social globalization in the host country tends to exert negative influence on bank profitability. The results show that banks originating from the relatively more economically globalized countries tend to perform better, while banks headquartered in countries with greater social and political globalizations tend to exhibit lower profitability levels. Originality/value An empirical model was developed that allows for the performance of multinational banks to depend on internal and external factors. Moreover, unlike the previous studies on bank performance, in this empirical analysis, we control for the different dimensions of globalizations while taking into account the origins of the multinational banks. The procedure allows us to test for the home field, the liability of foreignness and global advantage hypotheses to deduce further insights into the prospects of banking across borders.

Efficiency of the Bangladesh Banking Sector: Evidence from the Profit Function

The study investigates the level of profit efficiency in the Bangladesh banking sector over the years 2004–2011. We employ the Data Envelopment Analysis (DEA) method to assess the level of profit efficiency of Bangladesh commercial banks. The empirical findings indicate that the Bangladesh banking sector has exhibited the highest and lowest level of profit efficiency during the years 2004 and 2009, respectively. We find that there are only eight banks which have been profit-efficient, while another four banks are classified as profit-inefficient. The findings from this study are expected to contribute significantly toward decision-making for regulators, policymakers, bank managers, investors, and also to the existing knowledge on operating performance of the Bangladesh banking sector.

Forced Mergers on Bank Efficiency and Productivity: Evidence from Semi-parametric Malmquist Productivity Index:

The paper examines the impact of mergers and acquisitions on the productivity of the Malaysian banking sector. The analysis consists of two stages. Firstly, the semi-parametric Malmquist productivity index (MPI) method is applied to a [-5, +8] window to examine the efficiency and productivity of the acquiring and target banks during the pre- and post-merger periods. Secondly, as suggested by Banker and Natarajan (2008), we employ a battery of parametric and non-parametric univariate tests to examine the difference in the efficiency and productivity of the Malaysian banking sector during the pre- and post-merger periods. We find that the Malaysian banking sector has exhibited a higher total factor productivity level during the post-merger period attributed to technological progress. The empirical findings do not provide conclusive evidence on the less productive banks becoming the target for acquisitions.