Open AccessInvestigating the Efficiency of GCC Banking Sector: An Empirical Comparison of Islamic and Conventional Banks
Author(s) -
Imran Khokhar,
Mehboob Ul Hassan,
Muhammad Nauman Khan,
Fouad Amin
Publication year - 2019
Publication title -
international journal of financial research
Language(s) - English
Resource type - Journals
eISSN - 1923-4031
pISSN - 1923-4023
DOI - 10.5430/ijfr.v11n1p220
Subject(s) - data envelopment analysis , business , islamic banking , banking industry , scope (computer science) , financial system , retail banking , corporate governance , capital (architecture) , prudence , islam , accounting , industrial organization , finance , computer science , programming language , history , mathematical optimization , philosophy , mathematics , theology , archaeology
We examine and compare the performance of 63 (21 Islamic and 42 conventional) GCC banks at two tiers, covering the period of 2010–2016. In the first tier, an industry-level analysis is conducted of each country, followed by an individual bank-level analysis in the second tier. Deposits, assets, and capital are taken as inputs to measure the outputs using data envelopment analysis techniques. At the industry level, we find that Islamic banking is at par with-if not better than-conventional banking in all terms of efficiency. Particularly, banking in Bahrain and KSA is among the best, whereas there is no scope for improvement in the UAE’s banking industry. This low performance could be attributed to a lack of standardization in products and schemes as well as the level of prudence in decision-making, governance, and operations. At the bank level, many Islamic banks perform even better than conventional banks. Most studies on GCC and MENA focus on the determinants and indicators of development and the banking industry growth in general. Uniquely, we further examine GCC banking performance at the individual bank level by incorporating the latest available data.