The efficiency of Islamic banks: empirical evidence from the Asian countries’ Islamic banking sectors

Abstract

Abstract: The paper investigates the efficiency of the Islamic banking sectors in four Asian countries during the period of 2001–2006. The efficiency estimates of individual banks are evaluated using the non-parametric data envelopment analysis (DEA) method. The results suggest that the Asian Islamic banks have exhibited mean technical efficiency highest of 86.5% at 2004 during study period suggesting mean input waste of 13.5%. This implies that the Islamic banks in the Asian countries could have produced the same amount of outputs by only using 86.5% of the amount of inputs they employed. The empirical findings suggest that during the period of study, pure technical inefficiency outweighs scale inefficiency in Asian countries banking sectors. Overall the results imply that during the period of study, although the Asian Islamic banking sectors have been operating at a relatively optimal scale of operations, they were relatively managerially inefficient in controlling their operating costs and utilising their resources to the fullest.Islamic banks; data envelopment analysis; DEA; Asia