Investigating the Efficiency of GCC Banking Sector: An Empirical Comparison of Islamic and Conventional Banks

Abstract

We examine and compare the performance of 63 (21 Islamic and 42 conventional) GCC banks at two tiers, covering the period of 2010–2016. In the first tier, an industry-level analysis is conducted of each country, followed by an individual bank-level analysis in the second tier. Deposits, assets, and capital are taken as inputs to measure the outputs using data envelopment analysis techniques. At the industry level, we find that Islamic banking is at par with-if not better than-conventional banking in all terms of efficiency. Particularly, banking in Bahrain and KSA is among the best, whereas there is no scope for improvement in the UAE’s banking industry. This low performance could be attributed to a lack of standardization in products and schemes as well as the level of prudence in decision-making, governance, and operations. At the bank level, many Islamic banks perform even better than conventional banks. Most studies on GCC and MENA focus on the determinants and indicators of development and the banking industry growth in general. Uniquely, we further examine GCC banking performance at the individual bank level by incorporating the latest available data.

Promoting Customer Loyalty and Satisfaction in Financial Institutions through Technology Integration: The Roles of Service Quality, Awareness, and Perceptions

“…An Islamic financial institution (IFI) is defined as a banking or financial system that is based on the principles of Islam or Sharia Law and is guided by Islamic rules of economics [9][10][11]. These IFIs include banks, welfare institutions, and other lending institutions whose business models are based on Islamic principles [4,10].…”

“…An Islamic financial institution (IFI) is defined as a banking or financial system that is based on the principles of Islam or Sharia Law and is guided by Islamic rules of economics [9][10][11]. These IFIs include banks, welfare institutions, and other lending institutions whose business models are based on Islamic principles [4,10]. In the current study, the terms financial institution and financial technologies refer to Islamic banks, technologies, welfare institutions, and lending institutions that provide finances to their customers.…”

Driving Digital Transformation: Analyzing the Impact of Internet Banking on Profitability in the Saudi Arabian Banking Sector

“…The literature on Internet Banking underscores a paradigm shift in the traditional banking system, showcasing the deep operational and financial changes induced by the adoption of Information and Communication Technology (ICT) tools by both conventional and Islamic banks (Khokhar et al 2020). This shift is observable in the wide range of services and products offered exclusively online, facilitated by several digital tools, leading to increased profits and promising growth opportunities for the banking sector (Abdo 2021).…”

“…The banking sector, being at the forefront of digital transformation, admits the paramount importance of leveraging the latest information and communications technologies (Khatoon et al 2020). According to Khokhar et al (2020) the advent of "Fintech" has introduced innovative technologies like blockchain, artificial intelligence, and cloud technologies, which have contributed to enhanced efficiency unparalleled to that produced by traditional processes. This ever-growing evolution of "Fintech" is crucial for both Islamic and conventional finance, calling for its active leverage in this ongoing digital transformation (Khokhar et al 2020).…”

A Study of Awareness of Islamic Banking in Oman

“…There are also some studies, which found the similar findings. For example, Khokhar, I., et al . (2020) found that the Islamic banking performance is better than the conventional banking services.…”