1. Home
  2. Vol 19, No 2 (2020)
  3. Suhail

How Efficient are Islamic Banks in Indonesia, Saudi Arabia, and the United Kingdom?

Suhail Suhail, Mohamad Soleh Nurzaman

Abstract


This research aims to analyze the efficiency level of 13 Islamic Banks in Indonesia, Saudi Arabia, and the United Kingdom from 2015 to 2019. The calculation of the efficiency level in this study is relative, not absolute. This study uses the Data Envelopment Analysis (DEA) method and source data from Bankscope and Bank Focus. This research consists of 3 input variables that are Total of Assets (X1), Staff Expenses (X2) and Total Deposit (X3), and 2 Output that is Income (Y1) and Loan (Y2). This research finds that the overall efficiency level of 13 Islamic banks in Indonesia, Saudi Arabia, and the United Kingdom are fluctuating. According to the result, the Islamic banks in Saudi Arabia is more efficient than in Indonesia and the United Kingdom. There are some inefficient variables—the solution for this inefficiency problem achieve by employing managerial simulation generated by DEA. This study implies that Islamic banks should reduce wasteful variables and optimize the variables that improve the efficiency.

JEL Classification: C1, F30, G20, G21

How to Cite:

Suhail., & Nurzaman, M. S. (2020). How Efficient are Islamic Banks in Indonesia, Saudi Arabia, and the United Kingdom?. Etikonomi: Jurnal Ekonomi, 19(2), 237-270. https://doi.org/10.15408/etk.v19i2.15862.


Keywords


Keywords: Islamic Bank, Efficiency, Stability , Data Envelopment Analysis (DEA)

References


Abdelkader, I. B., & Salem, A. B. (2013). Islamic vs Conventional Microfinance Institutions: Performance Analysis in MENA Countries. International Journal of Business and Social Research, 13(5), 219-233. https://doi.org/10.18553/ijbsr.v3i5.21.

Alkhathlan, K., & Malik, S. A. (2009). Are Saudi Banks Efficient? Evidence using Data Envelopment Analysis (DEA). International Journal of Economics and Finance, 2(2), 53-58. https://doi.org/10.5539/ijef.v2n2p53.

Ajlouni, M., & Hmedat, M. (2011). The Relative Efficiency of Jordanian Banks and its Determinants Using Data Envelopment Analysis. Journal of Applied Finance & Banking, 1(3), 33-58.

Akhtar, M. A., & Sadaqat, S. (2011). Factors Influencing the Profitability of Islamic Banks of Pakistan. International Research Journal of Finance and Economics, 66, 125-132.

Al-Jarrah, I. M. (2007). The Use of DEA in Measuring Efficiency in Arabian Banking. Banks and Bank Systems, 2(4), 21-30.

Almazari, A. A., & Almumani, M. A. (2012). Measuring Profitability Efficiency of the Saudi National Banks. International Journal of Business and Social Science, 3(14), 176-185

Almumani, M. A. (2013). The Relative Efficiency of Saudi Banks: Data Envelopment Analysis Models. International Journal of Academic Research in Accounting, Finance and Management Sciences, 3(3). 152-161.

Al-Muharrami, S. (2008). An Examination of Technical, Pure Technical and Scale Efficiencies in GCC Banking. American Journal of Finance and Accounting, 1(2), 152-166.

Bader, M. K. I., Mohamad, S., Ariff, M., & Hassan, T. (2008). Cost, Revenue, and Profit Efficiency of Islamic versus Conventional Banks: International Evidence Using Data Envelopment Analysis. Islamic Economic Studies, 15(2), 23-76.

Bahrini, R. (2017). Efficiency Analysis of Islamic Banks in the Middle East and North Africa Region: A Bootstrap DEA Approach. International Journal of Financial Studies, 5(7), 1-13.

Banker, R. D., Charnes, A., & Cooper, W. W. (1984). Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis. Management Science, 30(9), 1078-1092.

Bayuny, A. F. R., & Haron, R. (2017). Determinants of Efficiency of Islamic Banks: Indonesian Evidence. Journal of Islamic Finance, 6(1), 1-15.

Belouafi, A., & Chachi, A. (2014). Islamic Finance in the United Kingdom: Factors Behind its Development and Growth. Islamic Economic Studies, 22(1), 37-78

Charnes, A., Cooper, W. W. and Rhodes, E. (1978). Measuring the Efficiency of Decision Making Units. European Journal of Operational Research, 2(6), 429-444.

Ferhi, A., & Chkoundali, R. (2015). Credit Risk and Efficiency: Comparative Study Between Islamic and Conventional Banks During the Current Crises. Journal of Behavioural Economics, Finance, Entrepreneurship, Accounting, and Transport, 3(1), 47-56.

Firdaus, M. F., & Hosen, M. N. (2013). Efisiensi Bank Syariah Menggunakan Pendekatan Two-Stage Data Envelopment Analysis (The Efficiency of Islamic Banks Using a Two-Stage Data Envelopment Analysis Approach). Buletin Ekonomi Moneter dan Perbankan,16(2), 167-188. https://doi.org/10.21098/bemp.v16i2.31.

Farrell, M. J. (1957). The Measurement of Productive Efficiency. Journal of The Royal Statistical Society, 120, 253-281.

Hassan, M. K. (2005). The Cost, Profit, and X-Efficiency of Islamic Banks. Presented in Economic Research Forum, 12th Annual Conference, Cairo, Egypt.

Hassan, M. K. (2006). The X-Efficiency in Islamic Banks. Islamic Economic Studies, 13, 50-78.

Hassan, M., Khan, M. N., Amina, M. F., & Khokhar, I. (2018). Measuring the Performance of Islamic Banks in Saudi Arabia. Journal of Economics and management, 12(1), 99-115

Havidz, S. A. H., & Setiawan, C (2015). Bank Efficiency and Non-Performing Financing (NPF) in the Indonesian Islamic Banks. Asian Journal of Economic Modelling, 3(3), 61-79

Hidayat, R. (2014). Efisiensi Perbankan Syariah Teori dan Praktik (Efficiency of Islamic Banking Theory and Practice). Bekasi: Gramata Publishing.

Hosen, M. N., & Rahmawati, R. (2014). Analisis efisiensi, profitabilitas dan kesehatan bank umum syariah di Indonesia periode 2010-2013. Finance and Banking Journal, 6 (2), 207-227.

Hidayati, N., Siregar, H., & Pasaribu, S. (2017). Determinant of Efficiency Of The Islamic Banking In Indonesia. Buletin Ekonomi Moneter dan Perbankan, 20(1), 29-48. https://doi.org/10.21098/bemp.v20i1.723.

Johnes, J., Izzeldin, M., & Pappas, V. (2013). A Comparison of Performance of Islamic and Conventional Banks 2004-2009. Journal of Economic Behavior & Organization, 103 [Supplement], S93-S107. https://doi.org/10.1016/j.jebo.2013.07.016.

Kamaruddin, B. H., Safa, M. S. and Mohd, R. (2008). Assessing Production Efficiency of Islamic Banks and Conventional Bank Islamic Windows in Malaysia. International Journal of Business and Management Research, 1(1), 31-48.

Khan, K. A. (2016). Profitability of Islamic Banks in UK: a Profitability Measurement of Islamic Banks in UK. (Unpublished Thesis). University of the West of Scotland.

Mokhtar, H. S. A., Abdullah, N., & Alhabshi, S. M. (2008). Efficiency and Competition of Islamic Banking in Malaysia. Humanomics, 24(1), 28-48.

Miah, M. D., & Uddin, H. (2017). Efficiency and Stability: A Comparative Study Between Islamic and Conventional Banks in GCC Countries. Future Business Journal , 3(2), 172–185. https://doi.org/10.1016/j.fbj.2017.11.001.

Mollah, S., & Zaman, M. (2015). Shari’ah Supervision, Corporate Governance and Performance: Conventional vs. Islamic Banks. Journal of Banking & Finance, 58, 418-435.

Noor, M., & Ahmad, N. (2012). The Determinants of Efficiency of Islamic Banks. The IUP Journal of Bank Management, 11(2), 32-70.

Öndeş, T., Ahmid, A. F., & Faraj, A. (2019). Financial Performance of Islamic Banks in Turkey and the United Kingdom: A Comparative Study. European Scientific Journal, 15(4), 87-104.

Rahim, R. A., Kadri, N., & Ismail, F. (2013). Efficiency Performance of Malaysian Islamic Banks. MPRA Paper 46238.

Rosman, R., Wahab, N. A., & Zainol, Z. (2014). Efficiency of Islamic Banks During the Financial Crisis: an Analysis of Middle Eastern and Asian Countries. Pacific-Basin Finance Journal, 28, 76-90. https://doi.org/10.1016/j.pacfin.2013.11.001.

Rozzani, N., & Rahman, R. A. (2013). Determinants of Bank Efficiency: Conventional versus Islamic. International Journal of Business and Management, 8(4), 98-108.

Rusydiana, A. S. (2013). Mengukur Tingkat Efisiensi dengan Data Envelopment Analysis (DEA): Teori dan Aplikasi (Measuring the Level of Efficiency with Data Envelopment Analysis (DEA): Theory and Application). Bogor: SMART Publishing.

Saeed, S., Ali, F., Adeeb, B., & Hamid, M. (2013). Examining Efficiency of Islamic and Conventional Banks in Pakistan: Using Data Envelopment Analysis. Global Journal of Management and Business Research Finance, 13(10), 111-115.

Salami, O. L., & Adeyemi, A. A. (2015). Malaysian Islamic Banks’ Efficiency: An Intra-Bank Comparative Analysis of Islamic Windows and Full-fledged Subsidiaries. International Journal of Business and Society, 16(1), 19–38. https://doi.org/10.33736/ijbs.551.2015

Siddique, M. A., & Rahim, M. (2013). Efficiency Analysis of Full-Fledge Islamic Banks and Standalone Islamic Branches of Conventional Banks in Pakistan: a Comparative Study for the Period of 2007-2012. RCIB’s Journal of Islamic Business and Management, 3(2), 129-149.

Sillah, B. M. S., & Harrathi, N. (2015). Bank Efficiency Analysis: Islamic Banks versus Conventional Banks in the Gulf Cooperation Council Countries 2006-2012. International Journal of Financial Research, 6(4), 143-150

Srairi, S. (2010). Cost and Profit Efficiency of Conventional and Islamic Banks in GCC Countries. Journal of Productivity Analysis, 34(1), 45-62. https://doi.org/10.1007/ s11123-009-0161-7.

Sufian, F. (2009). Determinants of Bank Effiency During Unstable Macroeconomic Environment: Empirical Evidence from Malaysia. Research in International Business and Finance, 23(1), 54-77.

Sufian, F., & Kamarudin, F. (2015). Determinants of Revenue Efficiency of Islamic Banks: Empirical Evidence from The Southeast Asian. International Journal of Islamic and Middle Eastern Finance and Management, 8(1), 36-63. https://doi.org/10.1108/IMEFM-12-2012-0114.

Syafrida, I., & Aminah, I. (2015). Faktor Perlambatan Pertumbuhan Bank Syariah di Indonesia dan Upaya Penangannya (Factors of Slowing Growth in Islamic Banks in Indonesia and Efforts to Overcome It). Jurnal Ekonomi dan Bisnis, 14(1), 7-20.

Tanjung, H., & Devi, A. (2013). Metodologi Penelitian Ekonomi Islam (Islamic Economics Research Methodology). Jakarta: Gramata Publishing.

Viverita, V., Brown, K. E., & Skully, M. T. (2007). Efficiency Analysis of Islamic Banks in Africa, Asia, and the Middle East. Review of Islamic Economics, 11(2), 5-16.

Wahab. (2015). Analisis Faktor-faktor yang Mempengaruhi Efisiensi Bank Umum Syariah di Indonesia dengan Pendekatan Two Stage Stochastic Frontier Approach (Analysis of Factors Affecting the Efficiency of Islamic Commercial Banks in Indonesia using the Two Stage Stochastic Frontier Approach). Economica, 6(2), 57-76.

Widiarti, A., Siregar, H., & Andati. T. (2015). The Determinants of Bank’s Efficiency in Indonesia. Buletin Ekonomi Moneter dan Perbankan, 18(2), 129-156. https://doi.org/10.21098/bemp.v18i2.520.

Yudistira, D. (2004). Efficiency in Islamic Banking; an Empirical Analysis of Eighteen Banks. Islamic Economic Studies, 12(1), 1-19.

Zainal, S., & Ismail, M. (2012). Shari’ah Compliant Banking Efficiency: a DEA Approach. Paper presented at 3rd International Conference on Business and Economic Research (3rd ICBER).

Zuhroh, I., Ismail, M., & Maskie, G. (2015). Cost Efficiency of Islamic Banks in Indonesia – A Stochastic Frontier Analysis. Procedia –Social and Behavioral Sciences, 211, 1122-1131. https://doi.org/10.1016/j.sbspro.2015.11.150.


Full Text: PDF

DOI: 10.15408/etk.v19i2.15862

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Copyright (c) 2020 ETIKONOMI