Technical Efficiency and Stability to Shocks: a Comparison Between Islamic Banks and Conventional Banks in MENA Region

Mohamed Chaffai

No 969, Working Papers from Economic Research Forum

Abstract: The banking industry market is shared by conventional and Islamic Banks in MENA. These latter banks have been expanding during the last decade. In an intensely competitive environment, it is interesting to compare banking performance and resiliency by considering two competing bank groups: Islamic and commercial banks. Using parametric distance function models, hyperbolic and output distance functions, two efficiency measures related to profit and revenue are compared. Results find evidence of technical efficiency differences, some evidence with bank size but reject the common technology assumption. We evaluate the business risk of each bank group by considering the impact of a sharp abrupt deterioration in their activities. Results show that Islamic banks have the lowest resiliency to shocks when compared to the two other bank categories while a shock on non lending activities has a much more impact on Islamic business banks’ business risk.

Pages: 24
Date: 2015-11, Revised 2015-11
New Economics Papers: this item is included in nep-ara and nep-eff
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