M. Kabir Hassan

Technical, scale and allocative efficiencies of Turkish banking industry

This paper investigates input and output efficiency in the Turkish banking industry to understand the impact of size, international variables, ownership, control and governance on profit, cost, allocative, technical, pure technical and scale efficiency measures. Employing a non-parametric approach along with a parametric approach, we estimate the efficiency of Turkish banks over the 1988–1996 period. This period allows us to account for the changes in the macro economy and regulatory treatment of the Turkish banking industry over time. Our results suggest that the heterogeneous characteristics of banks have significant impact on their efficiency. Moreover, cost and profit efficiencies of the Turkish banks have exacerbated over time. Results also indicate that the dominant source of inefficiency in Turkish banking is due to technical inefficiency rather than allocative inefficiency, which is mainly attributed to diseconomies in scale. To the extent that they chose an inefficient level of production, bank management is responsible for scale inefficient operations. However, increasing demand for banking services in the nineties, fueled by the states increasing demand for funds to finance chronic budget deficits and high growth policies, and the oligopolistic nature of the Turkish banking market do not justify scale adjustments. Our policy suggestions are that the government implement financial reform packages that foster competition in the banking market, and that the industry devise incentive schemes to improve managerial efficiency.

Financial Development and Economic Growth: New Evidence from Panel Data

This study provides new evidence on the role of financial development in accounting for economic growth. To derive feasible policy implications, we estimate not only unbalanced panel regressions with period fixed effects, but also variance decompositions of annual GDP growth rates to examine what proxy measures are most important in economic growth over time and how much they contribute to economic growth across geographic regions and income groups. We find strong linkages between financial development and economic growth in high-income OECD countries, but not in South Asian and Sub-Saharan African regions. Therefore, it may be necessary to make different efforts to achieve steady economic growth across geographic regions and income groups.

Financial deregulation and total factor productivity change: An empirical study of Turkish commercial banks

Abstract In January 1980, a new liberal economic policy was adopted in Turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks. As a result of this policy, the Turkish banking system witnessed a series of legal, structural and institutional changes throughout the 1980s. To enhance their competitive viability, Turkish banks responded by streamlining their operations and investing in new technology. Utilizing a DEA-type Malmquist Total Factor Productivity Change Index, we examine productivity growth, efficiency change, and technical progress in Turkish commercial banks during the deregulation of financial markets in Turkey. We found that all forms of Turkish banks, although in different magnitudes, have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress. Efficiency increases, however, were mostly owing to improved resource management practices rather than improved scales. Our results also indicate that private banks began to close their performance gap with public banks in the new environment.

A Comparative Literature Survey of Islamic Finance and Banking

There has been large-scale growth in Islamic finance and banking in Muslim countries and around the world during the last twenty years. This growth is influenced by factors including the introduction of broad macroeconomic and structural reforms in financial systems, the liberalization of capital movements, privatization, the global integration of financial markets, and the introduction of innovative and new Islamic products. Islamic finance is now reaching new levels of sophistication. However, a complete Islamic financial system with its identifiable instruments and markets is still very much at an early stage of evolution. Many problems and challenges relating to Islamic instruments, financial markets, and regulations must be addressed and resolved. In this paper, we provide a comprehensive comparative review of the literature on the Islamic financial system. Specifically, we discuss the basic features of the Islamic finance and banking. We also introduce Islamic financial instruments in order to compare them to existing Western financial instruments and discuss the legal problems that investors in these instruments may encounter. The paper also gives a preliminary empirical assessment of the performance of Islamic banking and finance, and highlights the regulations, challenges and problems in the Islamic banking market.

Handbook of Islamic Banking

Contents:1. Islamic Banking: An Introduction and OverviewM. Kabir Hassan and Mervyn K. LewisPART I: FOUNDATIONS OF ISLAMIC FINANCING2. Development of Islamic Economic and Social Thought Masudul Alam Choudhury 3. Islamic Critique of Conventional FinancingLatifa M. Algaoud and Mervyn K. Lewis 4. Profit-and-loss Sharing Contracts in Islamic Finance Abbas Mirakhor and Iqbal Zaidi5. Comparing Islamic and Christian Attitudes to Usury Mervyn K. Lewis PART II: OPERATIONS OF ISLAMIC BANKS6. Incentive Compatibility of Islamic Financing Humayon A. Dar7. Operational Efficiency and Performance of Islamic BanksKym Brown, M. Kabir Hassan and Michael Skully8. Marketing Islamic Financial Products Said M. Elfakhani, Imad J. Zbib and Zafar U. Ahmed9. Governance of Islamic Banks Volker Nienhaus 10. Risk Management in Islamic Banking Habib Ahmed and Tariqullah KhanPART III: INSTRUMENTS AND MARKETS11. Islamic Money Market Instruments Sam R. Hakim 12. Trade Financing in Islam Ridha Saadallah 13. Securitization in Islam Mohammed Obaidullah 14. Islamic Project Finance Michael J.T. McMillen 15. Islam and Speculation in the Stock ExchangeSeif El-Din Tag El-Din and M. Kabir Hassan16. Islamic Mutual Funds Said M. Elfakhani, M. Kabir Hassan and Yusuf M. SidaniPART IV: ISLAMIC SYSTEMS17. Islamic Banks and Economic Development Monzer Kahf 18. Islamic Methods for Government Borrowing and Monetary ManagementM. Fahim Khan 19. Accounting Standards for Islamic Financial Services Simon Archer and Rifaat Ahmed Abdel Karim 20. Mutualization of Islamic BanksMahmoud A. El-Gamal 21. Challenges Facing the Islamic Financial Industry M. Umer Chapra PART V: GLOBALIZATION OF ISLAMIC BANKING22. International Islamic Financial Institutions Munawar Iqbal 23. Islamic Financial Centres Ricardo Baba 24. Islamic Banking and the Growth of Takaful Mohd Masum Billah 25. Islamic Banking in the West Rodney Wilson Index

Is There a Cost to Faith-Based Investing: Evidence from FTSE Islamic Indices

We find no convincing performance differences between Islamic and non-Islamic indexes from January 1999 to December 2006. Islamic indexes are growth and small-cap oriented and conventional indices are relatively more value and mid-cap focused. After controlling for market risk, size, book-to-market, momentum, and local and global factors, we conclude that the difference in return between Islamic and conventional indices is not significant. Our findings suggest that the difference in performance of Islamic indices as compared to conventional indices is attributed to style differences between the two types of series. The multivariate cointegration analysis suggests that both the Islamic and conventional groups are integrated for the overall period. Overall, similar reward to risk and diversification benefits exist for both types of indexes.

The Financial and Operating Performance of China's Newly Privatized Firms

This study examines the pre- and post-privatization financial and operating performance of 208 firms privatized in China during the period 1990-97. The full sample results show significant improvements in real output, real assets, and sales efficiency, and significant declines in leverage following privatization, but no significant change in profitability. Further analysis shows that privatized firms experience significant improvements in profitability compared to fully state- owned enterprises during the same period. Firms in which more than 50% voting control is conveyed to private investors via privatization experience significantly greater improvements in profitability, employment, and sales efficiency compared to those that remain under the state’s control. Privatization seems to work in China, especially the more private firms become.

The Impact of Mergers and Acquisitions on the Efficiency of the US Banking Industry: Further Evidence

Using the Stochastic Frontier Approach (SFA), this study investigates the cost and profit efficiency effects of bank mergers on the US banking industry. We also use the non-parametric technique of Data Envelopment Analysis (DEA) to evaluate the production structure of merged and non-merged banks. The empirical results indicate that mergers have improved the cost and profit efficiencies of banks. Further, evidence shows that merged banks have lower costs than non-merged banks because they are using the most efficient technology available (technical efficiency) as well as a cost minimizing input mix (allocative efficiency). The results suggest that there is an economic rational for future mergers in the banking industry. Finally, mergers may allow the banking industry to take advantage of the opportunities created by improved technology. Copyright 2007 The Authors Journal compilation (c) 2007 Blackwell Publishing Ltd.

Is SAARC a viable economic block? evidence from gravity model

Abstract Intra-South Asian Association for Regional Cooperation (SAARC) trade appears to be very small compared to other existing regional blocks. This might be because of normal outcome or because of unexplored trade opportunity. If the latter is the case, then increased trade within this region might be welfare improving. This study attempts to make a formal analysis of these issues, and estimates a gravity model of international trade to examine whether intra-SAARC is lower or higher than what is predicted by an economic model. This gives an idea about the structure of comparative advantage in the SAARC countries that helps to explain why intra-SAARC trade is low and how trade among them can be increased. It also helps us to understand the possibility of trade creation and trade diversion effect resulting from South Asian Preferential Trading Arrangements among SAARC countries. Whereas the gravity model has been extensively used to measure bilateral trade among countries, they have, to the best of my knowledge, never been used to measure intra-SAARC trade. Our gravity model results suggest that SAARC member countries are yet to achieve trade-creating benefits. Appropriate policies need to be formulated for more regional integration. Liberalization of trade in SAARC countries offers significant gains for all the economies in the region. Efforts should be made to liberalize border trade and strengthen bilateral trade relations through the removal of tariff and nontariff barriers in the general framework of South Asian Preferential Trading Arrangements.

Financial disruption and bank productivity: The 1994 experience of Turkish banks

Abstract Turkey experienced a severe financial crisis in 1994 that resulted in a record level of contraction in its economy and banking. Employing a non-parametric approach, we measured the efficiency and productivity of the Turkish banking sector between 1992 and 1996. We also decomposed the productivity growth into its mutually exclusive and exhaustive components (technological change and efficiency change) to understand the impact of the crisis on different aspects of bank productivity. Our results suggest that there was a substantial productivity loss (17%) in 1994, which was mainly attributable to technical regress (10%) rather than efficiency decrease (7%). We also examined the effect of the crisis on different groups of banks operating in Turkey. We found that while foreign banks suffered the most from the crisis, public banks apparently passed through the crisis unharmed. State banks’ relative immunity could be explained with their respectively low open positions in foreign exchange in the advent of the crisis and with their relative soundness and safety in the event of the crisis. We also explored the relationship between bank size, productivity and crisis. Our results indicate that even though the crisis affected all sizes of banks dramatically, its adverse impact on small banks was overwhelming. However, measures undertaken by the government and banks’ own efforts seem to have helped the financial sector recover and attain its pre-crisis productivity and efficiency levels within the following 2 years.