The efficiency patterns of Islamic banks during the global financial crisis: The case of Bangladesh

Asmild, Mette; Kronborg, Dorte; Mahbub, Tasmina; Matthews, Kent

doi:10.1016/j.qref.2018.04.004

Cited by 31 publications

(23 citation statements)

References 42 publications

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“…In contrast, in a study on banks from 21 countries including Bangladesh, Bader et al (2008) found no significant difference in overall efficiency between the Islamic and conventional banks. However, Islamic banks have been found to completely outperform the conventional banks in other studies (e.g., (Asmild et al, 2018;Mamun et al, 2018;Rasel et al, 2018)).…”

Section: Related Literaturementioning

confidence: 88%

Are Islamic Banks Less Efficient than other Banks? Evidence from Bangladesh

Haque

Sohel²

2019

Asian Economic and Financial Review

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Considering the recent shrinkage in Islamic banks' profitability in Bangladesh, this study investigated whether these banks are less efficient than the conventional and mixed banks. Using 250 firm-year observations from 38 private commercial banks for the years from 2011 to 2017 and estimating operational efficiency through the Data Envelopment and Stochastic Frontier Analyses, we found robust evidence that Islamic banks are less efficient than the conventional and mixed banks. In additional analysis, it was found that the lower efficiency of Islamic banks was driven by their noninvestment income. A significant negative shift in Islamic banks' efficiency was evident in the most recent years compared to the earliest periods in our sample window. These findings helped us explain why the relative profitability of Islamic banks has declined recently. We suggest that Islamic banks' management pay more attention to their portfolio of non-investment products and services in order to remain competitive in the fast-growing banking landscape in Bangladesh. Contribution/ Originality: This study contributes to the existing literature on estimating banks' efficiency through the techniques of frontier analysis. While revenue is one of the primary sources of cash inflows, research examining banks' efficiency in generating revenues by utilizing their resources is scarce. We filled this gap in the literature.

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Section: Related Literaturementioning

confidence: 88%

Are Islamic Banks Less Efficient than other Banks? Evidence from Bangladesh

Haque

Sohel²

2019

Asian Economic and Financial Review

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“…Using both SFA and DEA, the efficiency of Islamic banks is found to be lower by Haque and Sohel (2019). However, Asmild et al (2019) caution against the simple comparison of Islamic with non-Islamic banks. They study the variable-specific efficiency (differences) of Bangladesh PCBs in a sample including Islamic Shariah banks and argue that comparison must be careful to compare like-for-like outputs.…”

Section: Literature Review On Efficiency Of Bangladeshi Banksmentioning

confidence: 99%

“…Simply using the outputs of the balance sheet as typified by the Intermediation approach of Sealey and Lindley (1977) fails to allow for the differences in the balance sheet and exclusions on off-balance sheet operations dictated by Sharia law. Avoiding this problem, Asmild et al (2019) use income flows, recognizing that interest is forbidden by Sharia where the loans made are in the form of an equity share.…”

Section: Literature Review On Efficiency Of Bangladeshi Banksmentioning

confidence: 99%

Inefficiency patterns in family-owned banks in Bangladesh

Asmild

Kronborg

Mahbub

et al. 2021

JES

Self Cite

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PurposeMulti-directional efficiency analysis (MEA) is an alternative methodology to data envelopment analysis (DEA) that investigates the improvement potentials in each input and output dimension and identifies a benchmark proportional to these potential improvements. This results in a more nuanced picture of the sources of the inefficiency providing opportunities for additional conclusions about which variables the inefficiency is mainly located on. MEA provides insights into not only the level of the inefficiency but also the patterns within the inefficiency, i.e. its sources and location. This paper applies this methodology to Bangladeshi banks to understand the differences in the inefficiency patterns between different subgroups.Design/methodology/approachThis paper analyses the difference in the pattern of inefficiency between the older family-dominated banks and the newer non-family-owned banks in Bangladesh using the recently developed MEAs technology, which enables analysis of patterns within inefficiencies rather than only levels of (in)efficiency. The empirical results show that whilst there are few significant differences in the levels of variable-specific efficiency scores between the two subgroups, there are clearer differences on the inefficiency contributions from particular outputs in most of the study period and also on most variables in the time window of 2007–2009. This finding provides clues to differences in business models and management practice between the two types of banks in Bangladesh.FindingsThe empirical results show that whilst there are few significant differences in the levels of variable-specific efficiency scores between the two subgroups (older family-dominated banks and the newer non-family-owned banks), there are clearer differences on the inefficiency contributions from particular outputs in most of the study period and also on most variables in the time window of 2007–2009, during the Global Financial Crisis (GFCs). This finding provides clues to differences in business models and management practice between the two types of banks in Bangladesh.Practical implicationsDEA is a conventional tool for benchmarking in management science. However, conventional benchmarking exercises based on DEA do not reveal significant differences in the sources of inefficiency that show differences in business models. While DEA remains the most utilized technique in the efficiency literature, we think that a more flexible and deeper analysis requires something like MEA.Originality/valueThe contribution is twofold. First, examination of performances of family-owned firms is a well-established but analysis of performances of family-dominated banks is relative scarce. Secondly, isolating the sources of inefficiency which differs between types of banks even if there is no difference in inefficiency levels is absolutely new for a complete data set of conventional banks in Bangladesh. It turns out that there are few (significant) differences between the groups in terms of the inefficiency levels, whereas clear patterns emerge in terms of differences in inefficiency contributions between family-dominated and non-family-owned banks, during the Global Financial Crisis

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“…A compilation of a study on 'Literature of efficiency of the financial institution' (Berger & Mester, 1997)showed that less than 5% researches had studied the efficiency of the bank in a developing nation and that majority of the research are directed to developed countries such as the US and the European nations. Some of the studies, which have helped understand the banking system of developing nations include (Asmild et al, 2018;Baten et al, 2015), which are some of the prominent studies from Bangladesh, Tecles & Tabak, 2010; are studies from Brazil, (Avkiran, 2015;Ji et al, 2019;Ma et al, 2019;Zhou et al, 2008) are studies from China, (Anand & Kumar, 2020;Bawa et al , 2019;Behera, 2019;George, 2016;Kumar & Dhingra, 2016b;Kumar, 2013;Padake & Soni, 2015) are some prevalent studies in Indian banking sector, (Abbas et al, 2019;Ahmad, 2011;Akhtar, & Nishat, 2002;Tahir et al, 2016) are some studies in Pakistan, (Miencha & Selvam, 2013) is study from Kenya, (Seelanatha, 2010;Wijesiri et al, 2015) are studies from Sri Lanka, (Mahathanaseth & Tauer, 2014;Sufian et al, 2010) are some studies from Thailand, (Eyceyurt et al, 2017;Gunes & Yilmaz, 2016) are some studies from Turkey, and many other similar studies (Banna et al, 2017;Le, 2020;Nguyen, 2020)from different countries. These studies have highlighted the inefficiencies and their causes for the banking sector of developing nations.…”

Section: Literature Reviewmentioning

confidence: 99%

Trends in Indian Private Sector Bank Efficiency: Non-Stochastic Frontier DEA Window Analysis Approach

Kumar¹,

Anand²,

Batra³

2020

JAFEB

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The study examines the efficiency of private sector banks in India with the help of Window DEA (Data Envelopment Analysis) for a period from 2005 to 2017. With a window of three years, the period was divided into 11 windows. The study outcomes show that 59.9% of all private sector banks in India operate at more than 0.9 level of efficiency, and there are only three occasions when banks were operating at the efficiency value between 0.6 to 0.7. Further, the consistency in the efficiency scores of the banks has also been analyzed using an efficiency mapping matrix, and the mean efficiency score of the bank in each window is studied. The score of standard deviation was interpreted accordingly for these banks. Banks that are showing the highest efficiency scores also have a higher variance of efficiency scores. There was no bank identified in the matrix that promises high-efficiency ratings with low variability. The study concludes that the analysis of the efficiency mapping matrix indicates that, as a DMU escalates in the efficiency scores, the standard deviation reflecting the risk in overall efficiency scores also tends to rise. The findings complement the concept of higher risk to higher return or greater efficiency.

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The efficiency patterns of Islamic banks during the global financial crisis: The case of Bangladesh

Cited by 31 publications

References 42 publications

Are Islamic Banks Less Efficient than other Banks? Evidence from Bangladesh

Are Islamic Banks Less Efficient than other Banks? Evidence from Bangladesh

Inefficiency patterns in family-owned banks in Bangladesh

Trends in Indian Private Sector Bank Efficiency: Non-Stochastic Frontier DEA Window Analysis Approach

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