DOES FOREIGN OWNERSHIP FOSTERS BANK EFFICIENCY: Empirical Evidence from the Malaysian Islamic Banking Industry

Fadzlan Sufian and Muhamed Zulkhibri

Pakistan Journal of Applied Economics, 2002, vol. 18, 143-177

Abstract: The paper investigates the performance of the Malaysian Islamic banking sector during the period 2001-2005. Several efficiency estimates of individual banks are evaluated using non-parametric Data Envelopment Analysis (DEA). Two different approaches have been adopted to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables. i.e bank size, ownership, capital. non-performing loans and management quality. The findings suggest that during the period of study, scale inefficiency dominates pure technical inefficiency in the Malaysian Islamic banking sector. We found that foreign banks have exhibited higher technical efficiency compared to their domestic peers. The second stage empirical results based on multivariate Tobit model also suggest that technically more efficient banks are larger, have greater loans intensity, and have less non-performing loans on average.

Date: 2002
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