The profitbility and determinants of efficiency of world Islamic banks

• Main Authors: Mohamad Noor, Mohamad Akbar, Ahmad, Nor Hayati
• Format: Article
• Language: English
• Published: The International Association of Islamic Banks Karachi 2011
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/5163/1/Akh.pdf; http://repo.uum.edu.my/5163/; http://lintas.uum.edu.my:8080/elmu/index.jsp?module=webopac-l&action=fullDisplayRetriever.jsp&szMaterialNo=0000117306
• Institution: Universiti Utara Malaysia

The paper investigates the efficiency of the Islamic banking sectors in 25 countries during the period of 1992-2009 involving 78 Islamic Banks. The efficiency estimates of individual banks are evaluated using the non-parametric Data Envelopment Analysis (DEA) method. The empirical findings seem to suggest that the World Islamic banks have exhibited high pure technical efficiency. A multivariate analysis based on the Tobit model reinforces these findings which are significantly associated with operating expenses against asset, size, equity, NPL, Asia Financial Crisis and national income level (GDP). We also find positive correlation between bank profitability and technical efficiency levels, indicating that the more efficient banks tend to be more profitable with strong result at Asian Islamic banks.The profitability analysis by Fixed Effect Model (FEM) proposed that profit efficiency is positively and significantly associated with operating expenses against asset, equity, high income countries and non performing loans against total loans specifically for model 8 & 9 that positively at 1% level. Interestingly, the empirical results show that more profitable banks are those that have higher operating expenses against asset, more equity against asset and concentrated at high income countries demonstrating close relationship between monetary factors in determining Islamic banks profitability.