Bank Ownership, Characteristics, and Performance:A Comparative Analysis of Domestic and Foreign Islamic Banks in Malaysia

Abstract

Today, the Malaysia Islamic banking system is becoming an effective means of financial intermediation reflected by its extensive distribution networks comprising 152-full-fledgedIslamic banking branches and more than 2,000 Islamic banking counters. The ability of the Islamic banking institutions to arrange and offer products with attractive and innovative features at prices that are competitive with conventional products, has appealed both the Muslim and nonMuslim customers. This has spurred the efforts by other non-bank financial intermediaries such as the development financial institutions, savings institutions and housing credit institutions to introduce Islamic banking schemes and instruments to meet their customer demands.Throughout the years, Islamic banking in Malaysia has gained significance, and has been on a progressive upward trend. Since 2000, the Islamic banking industry has been growing at an Constructing a separate frontier for each of the years under study is a critical issue in a dynamic business environment because a bank may be the most efficient in one year but may not be in the 5 following year. In the Malaysian context, it becomes more important, as there is an ongoing liberalisation in the banking sector over the estimation period. A separate frontier will highlight any significant changes taking place in the sector that are induced by Bank Negara Malaysia"s (BNM) supervisory policies.As Malaysia is currently vying for recognition as the capital or hub of Islamic banking worldwide, the government has taken measures, among others, to further liberalise the sector.The strategy is to create more competition, to tap new growth opportunities, and to raise the Furthermore, the paper explores the proximate sources of (in) efficiency under both univariate This paper unfolds as follows. Section 2 provides an overview of the related studies in the literature, followed by a section that outlines the method used and choice of input and output variables for the efficiency model. Section 4 reports the empirical findings. Section 5 concludes and offers avenues for future research. REVIEW OF THE RELATED LITERATUREWhile there has been extensive literature examining the efficiency features of U.S. andEuropean banking markets over recent years, the work on Islamic banking is still in its infancy.Typically, studies on Islamic bank efficiency have focused on theoretical issues and the empirical work has relied mainly on the analysis of descriptive statistics rather than rigorous statistical estimation (El-Gamal and Inanoglu, 2005). However, this is gradually changing as a number of recent studies have sought to apply the approaches outlined above to estimate bank efficiency using various frontier techniques. sharing. Despite that, the bank was found to perform better compared to its conventional counterparts in terms of liquidity and risk measurement (lower risks). METHODOLOGY Data Envelopment AnalysisThe present study employs the non-parametric frontier DEA approach to estimate the The analysis under ...

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