Technical Efficiency Determinants of Islamic Banks: How Do Countries Differ

Abstract

Purpose: This paper analyzes the determinants of technical efficiency of Islamic banks in eight of the Islamic countries. These include Brunei Darussalam, Jordan, Indonesia, Pakistan, Malaysia, Turkey, Saudi Arabia, and the UAE. Design/Methodology/Approach: A quarterly panel data on eight Islamic countries’ banks during the period of 2014 to 2019 is used for the analysis. Findings: The overall outcomes of the study indicate that banks in KSA, UAE, and Malaysia are found to be more efficient than their counterparts in other five countries in the sample. Banks from KSA and UAE have the same average technical efficiency scores while banks in Malaysia and Jordan tend to share similar average technical efficiency scores. Findings of the study reveal that variables like bank size, return on equity, and liquid asset ratio have a positive and significant bearing while factors like GDP growth rate, Z-score, and capital adequacy ratio have a negative and significant impact on technical efficiency of Islamic banks. Implications/Originality/Value: The study puts forward some useful policy implications both for managers of banks and policymakers of countries in the sample.

Keywords

• Technical Efficiency
• Data Envelopment
• Analysis
• Islamic Banks
• Z-score