Efficiency in Islamic and Conventional Banks: Evidence from the Gulf Cooperation Council Countries

36 Pages Posted: 21 Mar 2014

See all articles by Jill Johnes

Jill Johnes

University of Huddersfield

Marwan Izzeldin

Lancaster University Management School

Vasileios Pappas

University of Bath

Date Written: January 20, 2014

Abstract

We examine efficiency in Islamic and conventional banking systems in the Gulf Cooperation Council (GCC) region (2004-2007) using financial ratio analysis (FRA) and data envelopment analysis (DEA). We find the two approaches are complementary in terms of the information they provide. From the FRA, the Islamic banking system is less cost efficient but more revenue and profit efficient than the conventional one. Bootstrapped tests confirm that these differences are significant. From the DEA, average efficiency is significantly lower in Islamic than conventional banks. A decomposition of the DEA efficiencies demonstrates that the efficiency difference is more a consequence operating under Islamic rules (i.e. the banking system itself) rather than of managerial inadequacies. Productivity growth has been slight, and can be attributed to the sluggish adaptation of inefficient banks to technological advancements.

Keywords: Banking sector; Efficiency; Data Envelopment Analysis; Financial ratio analysis; Gulf region

JEL Classification: C14, G21

Suggested Citation

Johnes, Jill and Izzeldin, Marwan and Pappas, Vasileios, Efficiency in Islamic and Conventional Banks: Evidence from the Gulf Cooperation Council Countries (January 20, 2014). Available at SSRN: https://ssrn.com/abstract=2411974 or http://dx.doi.org/10.2139/ssrn.2411974

Jill Johnes

University of Huddersfield ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

Marwan Izzeldin

Lancaster University Management School ( email )

Lancaster, LA1 4YX
United Kingdom
01524 594674 (Phone)

HOME PAGE: http://www.lums.lancs.ac.uk/profiles/marwan-izzeldin/

Vasileios Pappas (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
01225384297 (Phone)

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