Efficiency Measures of Islamic Banks Using Data Envelopment Analysis Frontier: Evidence from Malaysia

Lazim Abdullah, Weifeng Ong, Nur Azura Sanusi
2019 Innovative Computing Information and Control Express Letters, Part B: Applications  
Efficiency in banking sector is extremely important for economic growth and financial sector development. It is a basis of profits, financial market funds and in productive investment. However, there is increasing concern that some commercial banks particularly Islamic banks are being inefficiently operated. Many researchers have compared the efficiency between Islamic banks and conventional banks, but very little literature focuses on the efficiency among Islamic banks alone. This study aims
more » ... propose efficiency measures of selected Islamic banks over the period of 2006 to 2015 in Malaysia using data envelopment analysis (DEA). The DEA was used to measure technical efficiency, pure technical efficiency and scale efficiency of a set of multiple inputs and multiple outputs of the five Islamic banks. With the objective function to maximize the efficiency, five linear programming problems were constructed based on multiple inputs and multiple outputs of the selected banks. The DEA results reveal that the BMMB is the least efficient bank among the five investigated Islamic banks. This paper contributes to the efficiency measures among Islamic banks in Malaysia where improvement to products and services of the banks could be suggested in the future.
doi:10.24507/icicelb.10.08.689 fatcat:va7pzuzcejfmxnkycmndesjo7i