COMPARATIVE EFFICIENCY OF THE ISLAMIC BANK VIS-A-VIS CONVENTIONAL BANKS IN MALAYSIA

Abstract

ABSTRACT

This paper is an empirical study determining the relative efficiency position of the Islamic bank of Malaysia, i.e., Bank Islam Malaysia Berhad (BIMB) and conventional banks of Malaysia during 1992-1996. The paper examines productive and managerial efficiency in the sources and the uses of banks' funds. The weighted ratio approach has been adopted in measuring various types of efficiencies of the banks. The measures of managerial test indicate that the managerial efficiency of the conventional banks is higher than that of the Islamic bank. ANOVA supports our results as the null hypothesis of the equality of means of the two systems is rejected at 5 percent level of significance. The measures of productivity efficiency test, however, show mixed results. The paper is structured as follows: section 1 provides the introduction, objective, methodology and the rationale of this study; section 2 reviews the literature; section 3 defines banking efficiency and develops the analytical tool for measuring efficiency; and section 4 provides empirical evidence and analysis. Conclusions and the scope for future study are presented in section 5.

JEL Classification: G210, G320