Efficiency in Arabian Banking

As an intermediary institution, bank has a very vital role in the economic development of a country so bank has to operate efficiently. The efficiency analysis can be conducted with the three approaches, namely cost efficiency, profit efficiency, and alternative profit efficiency. The three approaches can measured with two methode, parametric and non parametric. By using parametric methode (Distribution Free Approach), cost efficiency of 107 commercial banks operating for 10 years (2002- 2011), the average cost efficiency of banks in Indonesia is 0.6729. While the average value of the profit efficiency in Indonesian banks is 0.96363 or more efficient than cost efficiency. The score of alternative profit efficiency Indonesian banks is 0.965957. The cost efficiency of commercial banks on average have no strong correlation with all financial ratios of banks. The profit efficiency have a strong relationship with financial ratios ROA and BOPO. Financial performance of the bank's ROE ratio has a moderate correlation with the level of profit efficiency. While the level of alternative profit efficiency have a strong relationship with financial performance ratios ROE, ROA, and ROA. NIM ratio has a low relationship with alternative profit efficiency. Keyword: Distributin Free Approach, Cost Efficiency, Profit Efficiency, and Alternative Profit Efficiency.

Performance Analysis of Indonesian Islamic and Conventional Banks

Consolidation in the global banking industry has resulted in the emergence of financial conglomerates that conduct an extensive range of businesses with a group structure. To date, few studies have investigated the performance features of such groups. This study aims to extend the literature by evaluating the cost and profit efficiency and productivity change of Italian financial conglomerates during the 1990s using both parametric and nonparametric approaches. The impact of diversification and growth strategies on cost and profit efficiency is also investigated. The results seem to indicate that Italian banking groups have benefited from a consistent improvement in profit efficiency, while they have not experienced a clear increase in cost efficiency. Indeed, profit efficient banking groups display a high risk-high return profile.

The cost and profit efficiency of all Indian life insurance businesses is examined in this article using the data development analysis technique for the years 2017 through 2021. The Tobit regression is also used in this study to look into how well life insurance performs in relation to company factors. Cost efficiency scores were higher than profit efficiency ratings, as shown by the study. According to this, one of the most important inefficiencies for Indian life insurance is revenue inefficiency. In addition, state-owned life insurance firm in India is more profitable and economical than private ones, according to this study. In general, joint life insurers are more cost-effective than domestic life insurance companies, whereas domestic life insurance companies are more profit-efficient than joint venture insurers. The profitability and cost-effectiveness of life insurers are positively impacted by the claims ratio. While there are favorable effects of the distribution ratio and market share, respectively, effects on profit and cost-effectiveness. During the study period, the Indian life insurance businesses were relatively cost and profit efficient, according to empirical evidence. This study is the first to examine the profit and cost efficiencies of all Indian life insurance businesses. Decision-makers, top management, regulators, and other industry stakeholders will all gain from the research.

This article focuses on estimating and discussing cost and profit efficiencies related with the Spanish hotel sector. Managers have a special interest in controlling costs as a source of competitive advantage, which may enable companies to improve their results in a continuous manner. However, they usually do not attribute much importance to the improvement of profit efficiency, which is generally much lower than cost efficiency and as a result vital for achieving competitive advantage. In this article, cost and profit efficiencies are estimated in the Spanish hotel sector using a data panel for the years 2007 to 2011 and using distribution free approach methodology. The results show profit efficiency levels significantly lower than levels of cost efficiency, thereby confirming our working hypothesis.

Purpose: The aim of the present paper is to examine the revenue efficiency of the Indonesian Islamic banking sector. The study also seeks to investigate the potential internal (bank specific) and external (macroeconomic) determinants that influence the revenue efficiency of Indonesian domestic Islamic banks. Method/design/approach: We employ the whole gamut of domestic and foreign Islamic banks operating in the Indonesian Islamic banking sector during the period of 2009 to 2018. The level of revenue efficiency is computed by using the Data Envelopment Analysis (DEA) method. Furthermore, we employ a panel regression analysis framework based on the Ordinary Least Square (OLS) method to examine the potential determinants of revenue efficiency. The results indicate that the level of revenue efficiency of Indonesian domestic Islamic banks is lower compared to their foreign Islamic bank counterparts. Results and conclusion: We find that bank market power, liquidity, and management quality significantly influence the improvement in revenue efficiency of the Indonesian domestic Islamic banks during the period under study. Research implications: By calculating these efficiency concepts, we can observe the efficiency levels of the domestic and foreign Islamic banks. In addition, by comparing both cost and profit efficiency, we can identify the influence of the revenue efficiency on the banks’ profitability. Orinalitty/value: The preferred method allows us to distinguish between three different types of efficiency, namely cost, revenue, and profit efficiencies. Furthermore, we perform a series of parametric (t-test) and non-parametric (Mann- Whitney [Wilcoxon] and Kruskall-Wallis) tests to examine whether the domestic and foreign Islamic banks are drawn from the same population.

Cost and profit efficiency of Chinese banks: A non-parametric analysis

This paper investigates the effect of income diversification on the performance of Islamic banks in Malaysia, Saudi Arabia, Kuwait, United Arab Emirates, Bahrain and Qatar where they operate alongside conventional banks in a dual banking system. Accounting data was drawn from 68 conventional and 42 Islamic banks from 1997 to 2009. The main focus was to see whether a greater reliance on non-financing income impacts on earnings quality and if so, how this may vary between Islamic and conventional banks. Commission and fee income, trading income and other non-financing income constitute non-financing income. For conventional banks, this is known as non-interest income, but in Islamic banking the payment and receipt of interest is prohibited so this 'other income' is referred to as non-financing income (that is, income unrelated to deposit-taking and loan granting). Islamic banks operate as universal banks and offer retail and wholesale financing plus investment banking services. Using various empirical approaches, we find that non-financing income positively influences banks' risk-adjusted performance on a net overall impact basis. Greater income diversification on its own, increases income volatility and this negatively impacts bank's risk-adjusted performance. Islamic banks are found to be more focused on deposit/loan financing and less diversified in terms of non-financing income activities compared to conventional banks. We find that Islamic banks appear to be less susceptible to earnings volatility given their lower diversified income source. Islamic banks have lower profitability (on average) on a risk-adjusted basis when compared to their conventional counterparts.

Abstraksi Efisiensi merupakan salah satu parameter kinerja yang secara teoritis merupakan salahsatu kinerja yang mendasari seluruh kinerja sebuah organisasi. Efisiensi dalam dunia perbankanadalah salah satu parameter kinerja yang cukup populer, banyak digunakan karena merupakanjawaban atas kesulitan-kesulitan dalam menghitung ukuran-ukuran kinerja perbankan. Pengukuran efisiensi perbankan dapat dilakukan dengan 3 pendekatan yaitu; DataEnvelopment Analysis (DEA), Stochastic Frontier Approach (SFA), dan Distribution FreeApproach(DFA). Secara umum ada 3 pendekatan konsep dasar model efisiensi sector financialyaitu cost efficiency, standard profit efficiency, dan alternative profit efficiency. Dalampenelitian ini metode yang digunakan adalah Stochastic Frontier Approach (SFA). Dalam metode ini, profit dimodelkan untuk terdeviasi dari profit efficient frontier-nyaakibat adanya random noise dan inefisiensi. Profit dalam metode ini dipengaruhi oleh fungsiinput dan output, sedangkan input dan output yang digunakan dalam penelitian ini adalah DanaPihak Ketiga, Modal disetor, penempatan pada BI, penempatan pada bank lain, danpembiayaan yang diberikan. Dengan menggunakan metode SFA ini efisiensi perbankan syariahselama tahun 2010 sampai dengan tahun 2013 mengalami efisiensi rata-rata pertahun sebesar94,37 % dan laba perbankan syariah ini sangat dipengaruhi oleh pembiayaan yang diberikan danpenempatan pada Bank Indonesia.Kata Kunci : Efisiensi, Parameter kinerja keuangan Perbankan Syariah, StochasticFrontier Approach (SFA)

Bank Size, Specialization and Efficiency: The Netherlands, 1992-1998

This study utilizes Data Envelopment Analysis (DEA) to measure the efficiency of conventional and Islamic banks in Jordan at the first stage. The data covers the period from 2008 and 2019, and a total of 13 conventional and 3 Islamic banks. In the second stage, the data were then analyzed by different parametric and non-parametric tests (e.g., T-test, Mann–Whitney and Kolmogorov–Smirnov tests). The findings reveal that, overall, Islamic banks have higher level of efficiency compared to conventional banks. However, when we have taken the Arab Spring (AS), we observed that Islamic banks have better level of efficiency before AS (2008-2010) but conventional banks outperformed after the AS (2011-2019). Furthermore, we also did not find any significant differences in efficiency between young and old banks. In contrast, there were significant differences in efficiency between small and large banks and the latter outperformed the former. The findings shed light on the relative efficiency levels of these two types of banks, providing insights for policymakers, regulators, and bank management.

This paper has attempted to examine the impacts of competition policy reforms on the efficiency of the Philippine commercial banking system. It uses the stochastic frontier approach to come up with estimates of profit efficiency and cost inefficiency measures. The results are quite interesting. First, the average measured profit efficiency is 0.85, implying that on the average the commercial banks are using only 85 percent of their resources efficiently compared to the best practice commercial bank in the system producing the same output and facing the same conditions. On the other hand, the average measured cost inefficiency of the commercial banks is 1.39, suggesting that, on average, 39 percent of the commercial bank’s costs are wasted relative to the best-practice commercial bank in the system producing the same output and facing the same conditions. Second, some improvements in banks’ profit and cost efficiency can be observed after the liberalization of the entry of foreign banks in 1994, but these improvements were halted when the East Asian financial crisis occurred. Some improvements in profit and cost efficiency can again be observed after the passage of the General Banking Law in 2000 that liberalized further the entry of foreign banks. Third, small banks are found to be more profit and cost efficient than large banks. Fourth, foreign banks are generally more profit and cost efficient than domestic banks. However, these differences widen during crisis period and narrow during stable economic conditions. Fifth, profit efficiency of merged banks dropped more sharply than nonmerged banks after 1998, but eventually recovered and approximated that of nonmerged banks in 2002. Also, merged banks’ cost inefficiency dropped sharply in 2000 and since then has remained much lower than that of nonmerged banks. Sixth, some factors, such as agency problem, governance and market characteristics appear to be significantly correlated with measured efficiencies of banks._x000D_ These results have important policy implications. First, the liberalization of the banking system has generally produced positive results in terms of improving profit and cost efficiencies of banks. Second, improvement in profit and cost efficiencies of domestic banks brought about by greater competition cannot be sustained unless it is accompanied by improvement in prudential regulations and supervision. Third, M&A policy pursued by the Bangko_x000D_ Sentral ng Pilipinas appears to be complementary policy for improving profit and cost efficiencies of banks._x000D_ Fourth, understanding the nature and extent of the impact of some correlates of measured efficiencies can help_x000D_ authorities in designing appropriate regulatory and supervisory framework for banks.

The study estimates the profit efficiency of the commercial banks in Zimbabwe using Data Envelopment Analysis method. The study sample constituted 11 Commercial Banks for the period 2009-2014. The results suggest that Commercial Banks in Zimbabwe are profit inefficient. The average profit efficiency of the banks for the period was 80 per cent. This result means that an average bank operated at a profit efficient level of 80 per cent relative to the best performing bank in the sample. This implies that the best performing bank used fewer resources in generating profits compared to the average bank in the sample. The lowest level of inefficiency during the study period was experienced in the first half of 2009 as a result of the challenges banks experienced in transitioning from hyperinflation to stable economic environment. Banks had to incur costs in changing banking systems to adapt to the multi-currency system. The results further gives credence to the argument that Zimbabwean banks are inefficient hence the wide spreads between lending rates and deposit rates which characterised the system between 2009 and 2014.

In recent years most developing countries, including Myanmar, have been seriously affected by the negative effect of climate variability—such as erratic rainfall, increased temperatures, longer dry spells, flooding and saltwater intrusion—during the crop growing season. Furthermore, most farmers lack knowledge of climate variability and how to cope with the negative effect of climate change. This study aimed to evaluate the profitability and profit efficiency of rice farmers in the Ayeyarwady Delta, Myanmar, during 2019 monsoon growing season, taking into consideration the effect of weather shock and farmers’ agricultural adaptation practices to climate variability. The Cobb-Douglas functional form was applied, with maximum likelihood techniques, to estimate rice growing productivity and the influencing factors of profit inefficiency among individual rice farmers. The average profit efficiency level of the yield loss group was approximately 0.39, while that of the no yield loss group was 0.66, indicating a relatively large gap between the two groups (27% wider distribution). Observation of the climate adaptation performances of rice farmers indicated that rice production incorporating climate adaptation practices (CAP) led to a significantly better average profit efficiency score (66%) than rice production omitting CAP. This study clearly revealed that the effect of weather variability on individual rice farmers leads to large variations in net profit and profit efficiency for monsoon rice production in the study area. Climate-smart agricultural practices should be developed through agricultural extension services, and using farmer-to-farmer extension services, to share information and technologies among smallholder rice farmers.

This study revisited an alternative profit efficiency function specified by Berger & Mester, (1997) and we applied Battese & Coelli, (1995) inefficiency model as a unified and consistent framework in exploring the determinants of important factors causing profit efficiency differential on banking industry in Bangladesh. Using stochastic frontier technique we estimated bank specific profit efficiency for the period 2000 to 2007. This study attempted to examine the changes in the profit efficiency in accordance with NBs (Nationalized Commercial Banks), ISBs (Islamic Banks), FBs (Foreign Banks) and PBs (Private Banks) and significant variations of efficiencies across different kinds of banks in time periods. We found that the profit inefficiency has declined over the reference period and Translog Production Function is more preferable than Cobb-Douglas Production Function. Our results showed that Nationalized Commercial Banks were significantly inefficient and on the contrary ISBs, FBs, and PBs were efficient in producing profit and noteworthy. The estimated year wise average efficiencies of the sample banks from the profit efficiency model was 0.664 while group wise average profit efficiency was 0,639. Dhaka Bank is highly efficient with score 0.89 and AB Bank was found lowest efficient with score 0,35 according to the sample data.