Effi ciency in Islamic and Conventional Banks: A Comparative Analysis in the MENA Region

The present study investigates the efficiency of Islamic and conventional banks belonging to the MENA region around the last subprime crisis. The efficiency estimates of individual banks are first evaluated by using the Data Envelopment Analysis (DEA) approach. The analysis further links the variation in calculated efficiencies to a set of explanatory variables, namely the bank profitability, liquidity, risk, size and corporate governance. The empirical findings clearly bring forth the high degree of inefficiency of both Islamic and conventional banks of the MENA region. But above all, Islamic banks were slightly more efficient than their conventional counterparts before the crisis but the trend was inversed afterwards. The regression results focusing on bank efficiency and other bank specific traits suggest that conventional banks efficiency is negatively related to the bank economic profitability and size but positively with liquidity, leverage and the provisions on loans. However Islamic banks efficiency is only and positively influenced by the liquidity. Besides, the government ownership and the manager ownership respectively improve and decrease the Islamic banks efficiency; what is far different for conventional banks. Finally, the duality of the manager enhances the efficiency of both banks.
Keywords: Islamic Banks; conventional Banks; Bank efficiency; DEA method; MENA region.
JEL codes: G21; G28