Efficiency Convergence in Islamic and Conventional Banks

43 Pages Posted: 2 May 2017 Last revised: 23 Sep 2018

See all articles by Jill Johnes

Jill Johnes

University of Huddersfield

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Vasileios Pappas

University of Bath

Efthymios G. Tsionas

Lancaster University

Marwan Izzeldin

Lancaster University Management School

Date Written: September 14, 2018

Abstract

This paper examines how efficiency dynamics of Islamic and conventional banks compare and how they are converging across different countries. We employ both parametric and non-parametric methods to analyse a panel of Islamic and conventional banks from 23 countries during the period 1999 to 2014. Parametric methods (stochastic frontiers methods) shows that both steady state efficiency and the speed of convergence of Islamic and conventional banks are similar. A non-parametric framework (classification trees) identifies a varying degree of alignment between the Islamic and conventional banking model across countries, which could explain the plurality in conclusions in the Islamic/conventional bank efficiency debate. We find that the alignment between the two bank types is positively related to the country’s financial depth, transparency, economic stability and banking concentration. At the bank level, the alignment in the two banking systems is associated with higher income diversification, liquidity, profitability and financial stability.

Keywords: Efficiency Convergence, Random Parameter Estimation, Conditional β-Convergence, Islamic Banks, Classification Trees

JEL Classification: G21, F36, D24

Suggested Citation

Johnes, Jill and Ongena, Steven R. G. and Pappas, Vasileios and Tsionas, Efthymios G. and Izzeldin, Marwan, Efficiency Convergence in Islamic and Conventional Banks (September 14, 2018). Available at SSRN: https://ssrn.com/abstract=2960018 or http://dx.doi.org/10.2139/ssrn.2960018

Jill Johnes

University of Huddersfield ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vasileios Pappas (Contact Author)

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Efthymios G. Tsionas

Lancaster University ( email )

Lancaster LA1 4YX
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/

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