Cost-efficiency and financial and geographical characteristics of banking sectors in the MENA countries

Al-Jarrah, Idries Mohammad Wanas; Al-Abdulqader, Khalid; Hammoudeh, Shawkat

doi:10.1080/00036846.2016.1262524

Cited by 5 publications

(2 citation statements)

References 30 publications

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“…Their findings support that profit efficiency varies from one country to another, and the technological gap among countries plays an important role in explaining the ability of the banking sector in one country to compete with others. Al-Jarrah et al (2017) estimate the cost-efficiency levels for conventional and Islamic, Cooperation Council (GCC) and non-GCC banks in the MENA countries. They conclude that the observed efficiency scores for both conventional commercial and Islamic banks are comparable and are positively correlated with the market share, the market concentration and the bank size.…”

Section: Literature Review 21 Pre-crisis Studies Literaturementioning

confidence: 99%

A meta-crisis banking efficiency study in the MENA region

Anagnostopoulos

Noikokyris

Giannopoulos

2020

JIABR

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Purpose The purpose of this paper is to comparatively examine the cost and the overlooked revenue efficiency of Islamic and commercial banks in the aftermath of the crisis, operating in nine MENA-based countries during the 2010-2017 financial period, where the established empirical work is relatively limited. The authors also update the research where they use recent data sets and they provide for a targeted, structured literature review pre- and post-crisis in the Gulf region. Design/methodology/approach The authors examine cost and revenue efficiency of 25 major Islamic banks (IBs) and 25 major conventional banks (CBs). They conduct tests on the determinants of such variables. In the first stage of the analysis, they measure efficiency by using the data envelopment analysis (DEA) technique. The analysis performs regressions where these also reveal that the bank efficiency index is influenced by various bank type-specific attributes. It also seems that tighter restrictions on bank activities are negatively associated with bank efficiency. Second stage analysis, which accounts for banking environment and bank-level characteristics, confirms these results. Findings Conventional banks are both more cost and revenue efficient than Islamic banks over the period under examination. The analysis also reveals that the bank efficiency index is influenced by bank-type attributes. Greater presence of fixed capital resources has positive effects on growth in both Islamic and conventional banking. The major constraints impeding Islamic banking growth include labour costs. The authors examine whether and how bank-type orientation affects the cost and revenue efficiency of conventional and Islamic banks. They find that post-crisis Islamic banks underperform their conventional counterparts on both accounts within a mixed banking system. Research limitations/implications This study did not include comparative data before the 2008 financial crisis. There is also a great deal of heterogeneity among Islamic banks in the samples that have been examined here and by other researchers and the constructed efficiency scores should be interpreted cautiously as divergent Islamic banks are pooled in the same samples. Practical implications This study identified factors that may help bank managers to improve their financial outlook by controlling revenue and cost efficiency profitability. These factors could as well help to understand how some indicators affect both cost and revenue efficiency, particularly in Islamic banking. It also seems that tighter restrictions on Islamic bank activities are negatively associated with bank efficiency. Islamic banks that directly compete with their conventional counterparts in the aftermath of the crisis are less efficient on both the cost and revenue frontiers. They are potentially hindered by the differential regulations of supervising authorities in dual banking systems. Social implications The authors provide recommendations regarding regulatory and other issues that are relevant to Islamic banking and further research is suggested. Findings are relevant to a variety of stakeholders (managers, policymakers and regulators). Islamic banking authorities could re-examine the benefits of partially moving to a more standardized/conventional system of banking by lifting some trading restrictions. In addition, developing and maintaining managerial skills is an indispensable instrument for the long-term endurance of any system. A related aspect is thus an effort to determine the holistic efficiency (including managerial) of Islamic banks as a guide for policymakers to improve managerial performance. Originality/value There is relatively limited empirical work that investigates the efficiency between Islamic and conventional banking in the aftermath of the crisis in the Gulf region despite the growing importance of this region on political and economic levels. The authors also examine the revenue efficiency measure often under-researched in the literature and particularly important for comparative studies. Overseas-owned banks have attained much higher infiltration levels in middle-eastern countries over the past decade. It has also been suggested that market penetration differences may also be related to bank efficiency concerns among countries and their financial systems as opposed to types of banks.

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Section: Literature Review 21 Pre-crisis Studies Literaturementioning

confidence: 99%

A meta-crisis banking efficiency study in the MENA region

Anagnostopoulos

Noikokyris

Giannopoulos

2020

JIABR

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“…Notably, these countries attempt to coordinate their policies to achieve their common goal of realizing full economic integration through the Gulf Cooperation Council (GCC), an international organization of which they are all members. Furthermore, the financial institutions in those GCC countries are highly connected, characterized by economies of scale, and carry the failure of systemic risks usually associated with large financial firms (Al-Jarrah et al, 2016). Within such a business environment of heavy oil dependence, high financial interconnectedness, and a strong propagation of risk, the examination of the risk tolerance of GCC financial institutions to oil price movements and volatility presents itself as an interesting case study, particularly in the wake of recent global financial crises and the recent reoccurrence of collapses in oil prices.…”

Section: Introductionmentioning

confidence: 99%

Systemic Risk for Financial Institutions of Major Petroleum-Based Economies: The Role of Oil

et al. 2017

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New evidence on Islamic and conventional bank efficiency: A meta‐regression analysis

Chaffai

2021

Bulletin of Econ Res

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This paper aims to conduct a comparison of the efficiency of Islamic banks (IBs) versus conventional banks (CBs) based on meta-analysis. Empirical studies in this field, mainly in MENA or Gulf Cooperation Country regions, usually provide mixed conclusions and we do not know the reasons of this discrepancy in the results.We conduct a meta-regression analysis (MRA) that is based on 35 studies and includes 484 estimates of efficiency scores by bank type among other characteristics. We employ Bayesian averaging technique to identify the main covariates explaining the heterogeneity of the results. Our findings suggest, first, no evidence of the superiority of one banking system over the other, neither in terms of technical, cost or profit efficiency. Second, we identify several important bank's and sample characteristics that have also important impacts on the provided efficiency estimates. Third, when we compare the studies into those who conduct a deep statistical comparison of the efficiency distributions by bank type and those who omit to do it, we find that CBs outperform IBs, suggesting a potential publication bias. Finally, with respect to the inefficiency, MRA suggests that the regions banking systems suffer from the inability of banks to maximize profit, so they are much less profitable than it should be. There are also some managerial deficiencies linked to cost minimization, rendering the region's

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Cost-efficiency and financial and geographical characteristics of banking sectors in the MENA countries

Cited by 5 publications

References 30 publications

A meta-crisis banking efficiency study in the MENA region

A meta-crisis banking efficiency study in the MENA region

Systemic Risk for Financial Institutions of Major Petroleum-Based Economies: The Role of Oil

New evidence on Islamic and conventional bank efficiency: A meta‐regression analysis

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