Islamic Banks vs. Conventional Banks in Bangladesh: A Comparative Study Based on its Efficiency in Operation
Keywords:
Islamic Banks, Conventional Banks, Data Envelopment Analysis, Islamic Banking Industry.
Abstract
The main purpose of this study is to make a comparison between Islamic banks (IBs) and Conventional banks (CBs) in Bangladesh based on its efficiency in operation. The Data Envelopment Analysis (DEA) is employed under CRS and VRS approach, which allows for the decomposition of efficiency into technical, allocated and cost efficiency. The study also measures changes in productivity over the time as a result of technical progress by employing the Malmquist Total Factor Productivity Index. The results explain that the technical efficiency of IBs is better than that of CBs, but allocated and cost efficiency (CE) of IBs are higher than CBs. In Bangladesh there are 62 commercial banks included 8 Islamic Banks that are regulated by Bangladesh Bank (BB).
References
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Jemric, I., & Vujcic, B. (2002). Efficiency of banks in Croatia: A DEA approach. Comparative Economic Studies, 44(2-3), 169-193.
Leightner, J. E., & Lovell, C. K. (1998). The impact of financial liberalization on the performance of Thai banks. Journal of economics and business, 50(2), 115-131.
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Sarker, M. A. A. (1999). Islamic banking in Bangladesh: performance, problems, and prospects. International Journal of Islamic Financial Services, 1(3), 15-36.
Shahid, H., Rehman, R.U., Niazi, G.S.K., & Raoof. A. (2010). Efficiencies Comparison of Islamic and Conventional Banks of Pakistan .” International Research Journal of Finance and Economics,49, 24-42.
Sufian, F. (2007a). Trends in the efficiency of Singapore's commercial banking groups. International Journal of Productivity and Performance Management.
Sufian, F. (2007b). The efficiency of Islamic banking industry in Malaysia: Foreign vs domestic banks. Humanomics: The International Journal of Systems and Ethics, 23(3), 174-192.
Uddin, AKM Z. (2020). The curious rise of Islamic banking in Bangladesh. Daily Star News Paper, Bangladesh. Retrieved from https://www.thedailystar.net/business/news/the-curious-rise-islamic-banking-bangladesh-1880035.
Bangladesh Bank Annual Report. Retrieved from https://www.bb.org.bd/pub/publictn.php.
Berger, A. N., & Humphrey, D. B. (1992). Measurement and efficiency issues in commercial banking. In Output measurement in the service sectors (pp. 245-300). University of Chicago Press.
Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European journal of operational research, 2(6), 429-444.
Ellahi, N., Khattak, N., Rehman, K., & Jamil. (2009). Testing Technical and Cost Efficiency of Bangladeshi Islamic Banking System. 8th International Conference on Islamic Economics and Finance.1-10.
Ferrier, G. D., & Lovell, C. K. (1990). Measuring cost efficiency in banking: Econometric and linear programming evidence. Journal of econometrics, 46(1-2), 229-245.
Halkos, G. E., & Salamouris, D. S. (2004). Efficiency measurement of the Greek commercial banks with the use of financial ratios: a data envelopment analysis approach. Management accounting research, 15(2), 201-224.
Hassan, M. K. (2005, December). The cost, profit and X-efficiency of Islamic banks. In 12th ERF Annual Conference, 19th-21st December, Egypt.
Hassan, M. K., & Bashir, A. H. M. (2003, December). Determinants of Islamic banking profitability. In 10th ERF annual conference, Morocco (Vol. 7, pp. 2-31).
Ho, C. T., & Zhu, D. S. (2004). Performance measurement of Taiwan's commercial banks. International Journal of Productivity and Performance Management.
Jemric, I., & Vujcic, B. (2002). Efficiency of banks in Croatia: A DEA approach. Comparative Economic Studies, 44(2-3), 169-193.
Leightner, J. E., & Lovell, C. K. (1998). The impact of financial liberalization on the performance of Thai banks. Journal of economics and business, 50(2), 115-131.
Moin, M. S., & Chen, Y. (2008), “Performance of Islamic banking and conventional Banking in Bangladesh: a comparative study”. University of Skovde: School of Technology and Society.
Moin, M. S. (2013). Financial Performance of Islamic Banking and Conventional Banking in Bangladesh: A Comparative Study, International Journal of Innovative and Applied Finance.
Sarker, M. A. A. (1999). Islamic banking in Bangladesh: performance, problems, and prospects. International Journal of Islamic Financial Services, 1(3), 15-36.
Shahid, H., Rehman, R.U., Niazi, G.S.K., & Raoof. A. (2010). Efficiencies Comparison of Islamic and Conventional Banks of Pakistan .” International Research Journal of Finance and Economics,49, 24-42.
Sufian, F. (2007a). Trends in the efficiency of Singapore's commercial banking groups. International Journal of Productivity and Performance Management.
Sufian, F. (2007b). The efficiency of Islamic banking industry in Malaysia: Foreign vs domestic banks. Humanomics: The International Journal of Systems and Ethics, 23(3), 174-192.
Uddin, AKM Z. (2020). The curious rise of Islamic banking in Bangladesh. Daily Star News Paper, Bangladesh. Retrieved from https://www.thedailystar.net/business/news/the-curious-rise-islamic-banking-bangladesh-1880035.
Published
2020-04-04
How to Cite
Ahmad, F. (2020). Islamic Banks vs. Conventional Banks in Bangladesh: A Comparative Study Based on its Efficiency in Operation. International Journal of Islamic Banking and Finance Research, 4(1), 29-37. https://doi.org/10.46281/ijibfr.v4i1.535
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2020 Faisal Ahmad
This work is licensed under a Creative Commons Attribution 4.0 International License.
