Bank Efficiency Analysis: Islamic Banks versus Conventional Banks in the Gulf Cooperation Council Countries 2006 - 2012

This study employs data envelope analysis to produce the efficiency measures for both Islamic and conventional banks and conducts the means tests to investigate the efficiency comparison between the two bank types in the Gulf Cooperation Council (GCC) countries. 28 conventional banks and 20 Islamic banks are selected across the six countries in the GCC according to data availability for the period 2006 ¨C 2012. Two output variables, total loans and investments, and four input variables, total deposit, equity, fixed assets and general expenses are used in the DEA. Under the assumption of constant return to scale, no evidence is found for efficiency difference between the two bank types; and under the assumption of variable return to scale, the conventional banks are found to be more efficient than their Islamic counterparts in two points of time, 2009 and 2010, following the 2008 financial crisis. For within country efficiency comparisons, the two bank types are the same in Saudi Arabia, Kuwait and Qatar. The conventional banks are found to be more efficient than their Islamic counterparts in Bahrain and Emirates. The paper finds no evidence for the presence of technological improvements in the banking operations as indicated by the Malmquist productivity analysis.