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Bank Efficiency in Malaysia a DEA Approach

Author

Listed:
  • Fakarudin Kamarudin

    (Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor Darul Ehsan, Malaysia)

  • Fadzlan Sufian

    (School of Economics and Management, Xiamen University Malaysia, 43900 Sepang, Selangor Darul Ehsan, Malaysia)

  • Annuar Md. Nassir

    (Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor Darul Ehsan, Malaysia)

  • Nazratul Aina Mohamad Anwar

    (Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia, 71800, Negeri Sembilan, Malaysia)

  • Hafezali Iqbal Hussain

    (Taylor’s University, Taylor’s Business School, Faculty of Business and Law, 47500 Subang Jaya, Selangor Darul Ehsan, Malaysia)

Abstract

The purpose of the present paper is to examine the revenue efficiency of the Malaysian Islamic banking sector. The study also seeks to investigate the potential internal (bank specific) and external (macroeconomic) determinants that influence the revenue efficiency of Malaysian domestic Islamic banks. We employ the whole gamut of domestic and foreign Islamic banks operating in the Malaysian Islamic banking sector during the period of 2006 – 2015. The level of revenue efficiency is computed by using the Data Envelopment Analysis (DEA) method. Furthermore, we employ a panel regression analysis framework based on the Ordinary Least Square (OLS) method to examine the potential determinants of revenue efficiency. The results indicate that the level of revenue efficiency of Malaysian domestic Islamic banks is lower compared to their foreign Islamic bank counterparts. We find that bank market power, liquidity, and management quality significantly influence the improvement in revenue efficiency of the Malaysian domestic Islamic banks during the period under study. This study provides for the first time empirical evidence that covering all three efficiency concepts, namely cost, revenue, and profit efficiency is completely missing from the literature. By calculating these efficiency concepts, we can observe the efficiency levels of the domestic and foreign Islamic banks. In addition, by comparing both cost and profit efficiency, we can identify the influence of the revenue efficiency on the banks’ profitability.

Suggested Citation

  • Fakarudin Kamarudin & Fadzlan Sufian & Annuar Md. Nassir & Nazratul Aina Mohamad Anwar & Hafezali Iqbal Hussain, 2019. "Bank Efficiency in Malaysia a DEA Approach," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(1), pages 133-162.
    • Handle: RePEc:cbk:journl:v:8:y:2019:i:1:p:133-162
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    Citations

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    Cited by:

    1. Nathaniel Blankson & Godfred Amewu & Kenneth Ofori-Boateng & Kwame Adanu, 2022. "Banking reforms, efficiency and competition: new empirical evidence from a panel vector autoregressive analysis of Ghanaian banks," SN Business & Economics, Springer, vol. 2(5), pages 1-24, May.
    2. Andrea Arbula Blecich, 2024. "The performance of Croatian hotel companies – DEA window and Malmquist productivity index approach," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 42(1), pages 9-38.
    3. Jaafar Pyeman & Shahsuzan Zakaria & Nor Asyiqeen Mohd Idris, 2019. "An Empirical Analysis on the Application of Financial Derivatives as a Hedging Strategy among Malaysian Firms," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 13(3), September.
    4. Zhishuo Zhang & Yao Xiao & Huayong Niu, 2022. "DEA and Machine Learning for Performance Prediction," Mathematics, MDPI, vol. 10(10), pages 1-23, May.
    5. Mohammad Abdul Matin Chowdhury & Razali Haron, 2021. "The efficiency of Islamic Banks in the Southeast Asia (SEA) Region," Future Business Journal, Springer, vol. 7(1), pages 1-16, December.
    6. Hai-Yen Chang & Lien-Wen Liang & Yu-Luan Liu, 2021. "Using Environmental, Social, Governance (ESG) and Financial Indicators to Measure Bank Cost Efficiency in Asia," Sustainability, MDPI, vol. 13(20), pages 1-20, October.
    7. Xiaoyin Hu & Jianshu Li & Xiaoya Li & Jinchuan Cui, 2020. "A Revised Inverse Data Envelopment Analysis Model Based on Radial Models," Mathematics, MDPI, vol. 8(5), pages 1-17, May.
    8. Chepngenoh, Florence & Muriu, Peter W & Institute of Research, Asian, 2020. "Does Risk-Taking Behaviour Matter for Bank Efficiency?," OSF Preprints n7r2c, Center for Open Science.
    9. Breugelmans, Els & Altenburg, Lina & Lehmkuhle, Felix & Krafft, Manfred & Lamey, Lien & Roggeveen, Anne L., 2023. "The Future of Physical Stores: Creating Reasons for Customers to Visit," Journal of Retailing, Elsevier, vol. 99(4), pages 532-546.
    10. Sulaeman Rahman Nidar & Mokhamad Anwar & Ratna Komara & Layyinaturrobaniyah Layyinaturrobaniyah, 2020. "Determinant of regional development bank efficiency for their sustainability issues," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(1), pages 1133-1145, September.
    11. Goran Radoš, 2024. "Impact of labour income in gross value added on migrations in Bosnia and Herzegovina," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 42(1), pages 149-166.
    12. Heti Suryani Fitri Sulaeman & Sri Mulyantini Moelyono & Jubaedah Nawir, 2019. "Determinants of Banking Efficiency for Commercial Banks in Indonesia," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 13(2), June.

    More about this item

    Keywords

    Islamic Banks; Revenue Efficiency; Data Envelopment Analysis; Panel Regression Analysis; Domestic; Foreign;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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