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Performance Measurement of Islamic and Conventional Banking in Malaysia Using Two-stage Analysis of DEA Model

Noor Asiah Ramli, Siti Shaliza Mohd Khairi and Nor Azizah Razlan

International Journal of Academic Research in Business and Social Sciences, 2018, vol. 8, issue 4, 1185-1197

Abstract: Efficiency and effectiveness are two factors that have been considered in measuring the overall performance of any institution. The objective of this study is to measure the technical efficiency scores as well as the effectiveness of the Malaysian banking sector, and thus, determine their overall performance. The study analyzes the performance of the Malaysian banking sector, which comprises two types of bank, namely commercial banks and Islamic banks. The study covers the period of 2011 to 2015. A two-stage analysis of Data Envelopment Analysis (DEA) has been used in this study. The results of the analysis show that the average efficiency scores are greater than the average effectiveness scores for both types of bank for the years 2011 until 2015, while conventional banks perform better than Islamic banks. An efficient bank does not always equate to it being more effective. Together, these two factors reflect the overall performance of a bank. An analysis on the correlation between efficiency, effectiveness, and overall performance scores indicates that a positive and strong correlation exists between effectiveness and performance, whereas there is a negative correlation between efficiency and effectiveness scores.

Keywords: Performance measure; efficiency; effectiveness; Islamic banks; Conventional banks (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:hur:ijarbs:v:8:y:2018:i:4:p:1185-1197