Banking efficiency in Gulf Cooperation Council (GCC) countries: A comparative study

Abstract

We measure cost and profit efficiencies of banks operating in six GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) using heteroskedastic stochastic frontier (HSF) models. Our results show that measures of cost and profit efficiencies of banks vary widely across the six gulf countries over the same period.We examine whether cost and profit efficiencies of Islamic banks are significantly different from that of conventional banks. After allowing for bank risk, asset quality, environmental influences such as the level of interest rate, and country effect, we find that cost and profit efficiencies of Islamic banks are similar to that of conventional banks. Our results suggest that the country-specific variables have significant impact on cost and profit efficiencies of banks operating in GCC countries. Our findings indicate that cost and profit efficiencies of Islamic banks are more volatile than that of conventional banks.JEL Classification: G21, G28, G34, F23, F33

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

“…Whereas global data indicates a direct similarity in efficiency between conventional and Islamic banks over the period from 2006-2012, within the GCC, conventional banks have been found to outperform Islamic banks, particularly when Islamic banks are state-owned institutions (Alquahtani et al, 2017). Such findings have been further confirmed by Mohanty et al (2016) who revealed a high degree of intra-regional volatility affecting banking efficiency in Islamic banks that has led to regionally-specific volatility in cost and profit efficiencies when compared with conventional banking institutions. Whereby this efficiency variation might signal a higher degree of insecurity or inconsistency in Islamic banks, a multi-decadal study presented by Nosheen and Rashid (2019) revealed greater performance over conventional institutions during periods of volatility in terms of both credit quality and institutional stability, a finding that is directly related to financial provisioning.…”

“…Ara, 2016) has important implications for comparing Islamic and conventional banking practices. Specifically, the narrow banding of Islamic finance relative to region specific institutions (see Mohanty et al, 2016) has the potential to create systemic vulnerabilities that bias and restrict the trans-national applicability of the results. As an increasingly larger number of conventional banks are adopting Sharia-compliant solutions, such methodological limitations restrict the potential for exploratory comparisons and structural insights that can be linked to banking modality rather than economic system.…”

Sahi̇pli̇k, Yöntem Ve Banka Ti̇pi̇ Ne Ölçüde Önemli̇di̇r? Karşilaştirmali Banka Performansi Ve Etki̇nli̇ği̇ Üzeri̇ne Bi̇r Li̇teratür Araştirmasi

“…Numerous studies comparing IBs and CBs from different countries have found that the efficiency levels of IBs and CBs are very similar (Mollah and Zaman, 2015;Daly and Frikha, 2015;Djennas, 2016;Hisham Yahya et al, 2012;Johnes et al, 2014;Marie et al,2013;Mohanty et al, 2016).…”

Cost Efficiency and Credit Risk: A Comparative Study between Islamic and Conventional Banks in the GCC Countries

“…In addition, this research refers to the two-stage GMM method, with robust standard errors in order to resolve the error heteroskedasticity and autocorrelation problems. Mohanty et al, 2016 ;Ghroubi and Abaoub, 2016 Tan and Anchor, 2017…”