Conventional versus Islamic bank efficiency: A dynamic network data-envelopment-analysis approach

This study compares the efficiency of conventional and Islamic banks in Malaysia by engaging in a dynamic three-step (production, intermediation, and profitability) network data envelopment analysis (DEA). The inputs and outputs for the DEA model are selected based on the CAMELS rating. The major co...

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Bibliographic Details
Published in:Journal of intelligent & fuzzy systems 2021-01, Vol.40 (2), p.1921-1933
Main Authors: Azad, Md Abul Kalam, Talib, Muzalwana Binti Abdul, Kwek, Kian-Teng, Saona, Paolo
Format: Article
Language:English
Subjects:
Camels
Data analysis
Data envelopment analysis
Efficiency
Islamic financing
Loans
Profitability
Profits
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Summary:This study compares the efficiency of conventional and Islamic banks in Malaysia by engaging in a dynamic three-step (production, intermediation, and profitability) network data envelopment analysis (DEA). The inputs and outputs for the DEA model are selected based on the CAMELS rating. The major contributions of this study are threefold. First, this study investigates the efficiency of Malaysian banks using a novel dynamic network DEA model. Second, the Malaysian banking industry is found to be efficient in creating earning assets rather than in creating loans or profit. The results reveal that only a few banks in Malaysia have been efficient in converting deposits and equities into profit. Third, Islamic banks, in general, have been performing efficiently in the production and profitability approaches. Conventional banks, in contrast, are found to have been efficient in the intermediation approach. Policy implications are derived from the main conclusions.
ISSN:1064-1246
1875-8967
DOI:10.3233/JIFS-189196