Comparison Of Efficiency And Productivity Changes Of Islamic And Conventional Banks: Evidence From Europe And Muslim-Majority Countries?
Authors: Abu-Alkheil Ahmad M. , Burghof Hans-Peter , Khan Walayet A. 
Published: February 2016

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 36.1pt 0pt 0.5in; text-align: justify; mso-pagination: none; mso-add-space: auto;" class="MsoNormalCxSpFirst"><span style="font-family: Times New Roman;"><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;">This paper examines the efficiency performance of Bosna Bank International (BBI) in </span><span class="st1"><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-fareast-font-family: &quot;Times New Roman&quot;; mso-fareast-theme-font: minor-fareast;">Bosnia-Herzegovina </span></span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;">and Islamic Bank of Britain (IBB) in the UK, against small conventional banks in each country and also against small and large Islamic banks from Muslim-majority countries.<span style="mso-spacerun: yes;"> </span>This paper also estimates the productivity changes of IBB and BBI relative to small Islamic banks, within and outside Europe, and relative to small conventional banks in the UK and Bosnia respectively.<span style="mso-spacerun: yes;"> </span>Finally, this paper utilizes OLS regression analysis to check</span><span style="color: black; font-size: 10pt; mso-themecolor: text1;"> the robustness of the overall data envelopment analysis (DEA) results, as well as to determine the impact of internal and external factors on bank's efficiency.<span style="mso-spacerun: yes;"> </span></span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;">The analysis covers the 4-year period </span><span style="color: black; font-size: 10pt; mso-themecolor: text1;">from 2005 through 2008.<strong> </strong><span style="mso-spacerun: yes;"> </span>The findings suggest </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;">that</span><span style="color: black; font-size: 10pt; mso-themecolor: text1;"> IBB and BBI</span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;"> are technically inefficient.<span style="mso-spacerun: yes;"> </span>In comparison with small</span><span style="color: black; font-size: 10pt; mso-themecolor: text1;"> banks, inefficiency is largely due to mismanagement.<span style="mso-spacerun: yes;"> </span>Inefficiency becomes scale in nature relative to large Islamic banks.</span><strong style="mso-bidi-font-weight: normal;"><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;"><span style="mso-spacerun: yes;"> </span></span></strong><span style="color: black; font-size: 10pt; mso-themecolor: text1;">As compared to </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;">Islamic banks, BBI yields higher pure technical efficiency than IBB, <span style="mso-bidi-font-weight: bold;">but IBB </span></span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-font-weight: bold;">records higher positive growth in estimated efficiency.<span style="mso-spacerun: yes;"> </span>IBB and BBI</span><span lang="EN-CA" style="color: black; font-size: 10pt; mso-themecolor: text1; mso-ansi-language: EN-CA; mso-bidi-language: AR-JO;"> yield upward growth in total factor productivity </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-font-weight: bold;">and </span><span lang="EN-CA" style="color: black; font-size: 10pt; mso-themecolor: text1; mso-ansi-language: EN-CA; mso-bidi-language: AR-JO;">technical efficiency but </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-font-weight: bold;">record negative growth in </span><span lang="EN-CA" style="color: black; font-size: 10pt; mso-themecolor: text1; mso-ansi-language: EN-CA; mso-bidi-language: AR-JO;">technology innovations</span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;">.<span style="mso-spacerun: yes;"> </span></span><span style="color: black; font-size: 10pt; mso-themecolor: text1;">Results also suggest that the IBB and BBI </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-font-weight: bold; mso-bidi-language: AR-JO;">lag </span><span style="color: black; font-size: 10pt; mso-themecolor: text1; mso-bidi-language: AR-JO;">relatively <span style="mso-bidi-font-weight: bold;">behind</span></span><span style="color: black; font-size: 10pt; mso-themecolor: text1;"> their conventional peer banks in terms of efficiency and productivity performance.<span style="mso-spacerun: yes;"> </span>BBI shows much better efficiency performance relative to conventional banks than IBB.<span style="mso-spacerun: yes;"> </span>Overall, a bank that is more efficient is found to be larger, more profitable, acquire less debt, invest more in skills, and operates in countries with a higher GDP per capita.</span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>