THE X-EFFICIENCY OF THE SUDANESE ISLAMIC BANKS

Abd elrhman Elzahi Saaid,Saiful Azhar Rosly,Mansor H. Ibrahim,and Naziruddin Abdullah ()
Authors registered in the RePEc Author Service: Mansor H. Ibrahim and Abd Elrahman Elzahi Saaid Ali

IIUM Journal of Economics and Management, 2003, vol. 11, issue 2, 123-141

Abstract: Important changes have taken place in the Sudanese banking industry since 1989. The transformation of the banking industry to conform to the Islamic principles has put the spotlight on the performance of the Islamic banks in Sudan. This study investigates the X-efficiency (technical and allocative) of these banks. The study used the basic Stochastic Frontier Approach (SFA). This is accomplished by decomposing the error term into two components, namely random noise (vi) and possible inefficiency (ui). The empirical results tend to suggest that banks in the sample had low levels of X-efficiency. This implied that the Sudanese Islamic banks were not optimizing their inputs usage. However, the results also showed that the inefficiency in the Sudanese Islamic banks could be more associated with inputs wasting (technical inefficiency) rather than choosing the incorrect input combinations (allocative inefficiency). The study has several important policy implications to offer, one of which is that it could be taken as a guideline for the Sudanese government to chart a policy on banking deregulation and mergers. Moreover, the study provides some information and identifies the source of X-inefficiency, which could, in turn, be used to assist banks’ managements to overcome the problems of inefficiency.

Keywords: X-inefficiency; Islamic banks; Stochastic Frontier Approach (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ije:journl:v:11:y:2003:i:2:p:123=-141

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