The Determinants of Cost/Profit Efficiency of Islamic Banks Before, During and After the Subprime Crisis Using SFA Approach

Abstract

In this paper we estimate the determinants of cost and profit efficiency of Islamic banks using the stochastic frontier approach SFA. We use 62 Islamic banks in sixteen countries of the MENA and South-East Asia regions during the period [2004][2005][2006][2007][2008][2009][2010]. We compare the efficiency between Islamic banks during the subprime crisis phases. Moreover, we examine the variables specific to the banks which can explain the sources of inefficiency and those let us decline the scores of cost and profit efficiency on a specific number of variables (total assets, capital adequacy, profitability, credit risk, operational costs). Results reveal that, Islamic banks in our study are more efficient in the generation of the profits rather than in the control of the costs. Thus, only the total assets and the operational costs represent the determinants of cost efficiency of the Islamic banks. Finally, for the profit efficiency our results indicate that the Islamic banks with high equities and high ratio of profitability are efficient in terms of profit.

The Ef ciency and Inef ciency of the Banking Sectors: Evidence From Selected ASEAN Banking

“…The result support Tahir, et al (2012) and Barth, et al (2013). In contrast, the result contradicts to Mghaieth and Mehdi (2014). The reason is market reputation.…”

“…Large-sized banks in ASEAN are less cost efficient and government banks improved their efficiency. Mghaieth and Mehdi (2014) study the scores of cost and profit efficiency of 16 countries before, during and after the 2008 financial crisis. On the evolution of efficiency scores, the sample has a medium level of cost efficiency of 82.13%.…”

Comparing Efficiency and Productivity in Islamic Banking : Case Study Indonesia, Malaysia and Pakistan

“…These results are consistent with the fact that the Islamic banks operate in overall regulatory environments, which are not very supportive of their operations. Mghaieth and El Mehdi (2014) focus on finding the determinants of Islamic banking around economy crisis timeline, [2007][2008]. It shows the samples (banks) has 82.13% rate of cost efficiency and 82.47 % rate of profit efficiency.…”

Financial Differences and Similarities of Islamic Banks: A Study on Qismut Countries

“…Islamic banks have been making efforts to increase their productivity and to improve their performance in order to gain sustainability as a result of the recent globalization movement (Mghaieth and Mehdi, 2014). Recent global mortgage crisis brought Islamic finance forward as an alternative in terms of investment and banking (Smola and Mirakhor, 2010).…”