Efficiency Convergence in Islamic and Conventional Banks

48 Pages Posted: 16 Sep 2019 Last revised: 5 Oct 2020

See all articles by Marwan Izzeldin

Marwan Izzeldin

Lancaster University Management School

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 Kent, Kent Business School

Mike Tsionas

Lancaster University

Date Written: February 1, 2020

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, Community banks, Conditional β-convergence, Islamic banks, Classification trees

JEL Classification: G21, F36, D24

Suggested Citation

Izzeldin, Marwan and Johnes, Jill and Ongena, Steven R. G. and Pappas, Vasileios and Tsionas, Efthymios G., Efficiency Convergence in Islamic and Conventional Banks (February 1, 2020). Swiss Finance Institute Research Paper No. 19-71, Available at SSRN: https://ssrn.com/abstract=3449215 or http://dx.doi.org/10.2139/ssrn.3449215

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/

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 Kent, Kent Business School ( email )

Canterbury, Kent CT2 7PE
United Kingdom

Efthymios G. Tsionas

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

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