Assessment of Financial Performance and Efficiency of Islamic and Traditional Banks in the Post-Crisis Period

Abstract

Much of the research surrounding Islamic banking has focused on the 2008 financial crisis and the distinctions between conventional and Islamic institutional performance. Given the consensus that due to lower risk profiles and higher efficiency performance, Islamic banking outperformed its conventional counterparts during that tumultuous period, it is important to extend the academic focus beyond this narrow timeframe. The current investigation has applied a systematic methodology to review quantitative data from several emergent studies regarding post-crisis performance comparisons between Islamic and conventional banking institutions. At the risk of regional or institutional bias, these findings have demonstrated a higher degree of volatility in technical and scale efficiency amongst Islamic institutions since 2010, yet simultaneously, a higher overall efficiency rate of 0.886 when contrasted with the average total efficiency of 0.771 in conventional banks. The evidence highlights a positive correlation between the risk-adverse investments utilised by the Islamic banking system, but suggests that there is significant opportunity for growth through network consolidation and institutional expansion in order for these banks to take advantages of regionalised economies of scale.