ERF 26th Annual Conference
Are Islamic Banks More Efficient Than Conventional Banks? The Meta-regression Verdict
No.
ERF26_92
Publisher
ERF
Date
July, 2020
Topic
C1. Econometric and Statistical Methods and Methodology
L2. Firm Objectives, Organization, and Behavior
D2. Production and Organizations
G2. Financial Institutions and Services
This paper aims to conduct a comparison of the efficiency of Islamic banks versus conventional banks based on meta analysis. Empirical studies in this field mainly in MENA or GCC regions, usually provide mixed conclusions and we do not know the reasons of this discrepancy in the results. We conduct a meta regression analysis which is based on 35 studies and includes 484 estimates of efficiency scores by bank type among other characteristics. We employ Bayesian averaging technique to identify the main covariates explaining the heterogeneity of the results. Our findings suggest first, no evidence of the superiority of one banking system over the other, neither in terms of technical, cost or profit efficiency. Second we identify several important bank's and sample characteristics which have also important impacts on the provided efficiency estimates. Third, when we compare the studies into those who conduct a deep statistical comparison of the efficiency distributions by bank type and those who omit to do it, we find that conventional banks outperform Islamic banks, suggesting a potential publication bias. Finally, with respect to the inefficiency, meta regression analysis suggests that the regions banking systems suffers from the inability of banks to maximize profit so they are much less profitable than it should be. There are also some managerial deficiencies linked to cost minimization, rendering the region's banking system costly, compared to some deficiencies in the overall banking production process itself (technical efficiency).
Research Fellows
Mohamed El Arbi Chaffai
Professor of Econometrics, University of Sfax