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Title:
ANALYSIS OF THE COMPARATIVE PERFORMANCE OF ISLAMIC AND CONVENTIONAL BANKS: DOES GDP MATTER?

Authors:
Ghadeer M. Khartabiel, Dr. Tunku Salha Tunku Ahmad, Prof. Dr. Rosni Bakar

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1*Ghadeer M. Khartabiel, 2Dr. Tunku Salha Tunku Ahmad, 3Prof. Dr. Rosni Bakar
1,2,3. School of Business Innovation & Technopreneurship, Universiti Malaysia Perlis, Malaysia
*. Corresponding author

MLA 8
Khartabiel, Ghadeer M., et al. "ANALYSIS OF THE COMPARATIVE PERFORMANCE OF ISLAMIC AND CONVENTIONAL BANKS: DOES GDP MATTER?" Int. j. of Social Science and Economic Research, vol. 3, no. 9, Sept. 2018, pp. 5034-5071, ijsser.org/more2018.php?id=352. Accessed Sept. 2018.
APA
Khartabiel, G., Ahmad, D., & Bakar, P. (2018, September). ANALYSIS OF THE COMPARATIVE PERFORMANCE OF ISLAMIC AND CONVENTIONAL BANKS: DOES GDP MATTER? Int. j. of Social Science and Economic Research, 3(9), 5034-5071. Retrieved from ijsser.org/more2018.php?id=352
Chicago
Khartabiel, Ghadeer M., Dr. Tunku Salha Tunku Ahmad, and Prof. Dr. Rosni Bakar. "ANALYSIS OF THE COMPARATIVE PERFORMANCE OF ISLAMIC AND CONVENTIONAL BANKS: DOES GDP MATTER?" Int. j. of Social Science and Economic Research 3, no. 9 (September 2018), 5034-5071. Accessed September, 2018. ijsser.org/more2018.php?id=352.

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Abstract:
The aim of this study is two-fold. Firstly, it attempts to examine the comparative performance of 44 Islamic and 44 conventional banks from Asia, Africa, the Middle East, Gulf region, and Europe. This study covers the period from 2005 to 2016. Banks performance is proxied by banks efficiency scores estimated by the nonparametric Data Envelopment Analysis (DEA). Secondly, the study utilizes the censored Tobit regression approach to examine the effect of banks internal factors on banks performance. Most importantly, this study intends to examine the applicability of the 'finance-lead growth' and 'efficiency channel' hypotheses in the context of the relationship between GDP and banks overall performance over the entire period and pre, crisis, and post-crisis periods. t-Test is also applied to investigate the significance of differences in the results during the entire period and the 3 sub periods. Findings show that both Islamic and conventional banks appear to be relatively technically inefficient. Yet, Islamic banks are found to have less volatile efficiency scores than conventional banks in the pre, crisis, and post-crisis periods. In terms of the regression analysis approach, findings showed that new banks are found to have a lower efficiency performance, increased investment in labor negatively affect banks efficiency performance, banks with a higher level of profitability are more efficient, and higher lending intensity increases banks efficiency performance. The effect of the macroeconomic variable namely GDP on banks efficiency performance and vis-versa was inconclusive at 5% significance level over the entire period, pre and during the crisis of 2008. Accordingly, findings support neither 'finance-lead growth' nor 'efficiency channel' hypotheses. Therefore, it can be argued to some extent that the relationship between GDP and banks performance was overemphasized in the existing literature. Surprisingly, the relationship in both directions between the two variables is found negatively significant in the post crisis period. This indicates that the relationship between GDP and banks performance is only applicable because of economic shocks. The adverse association between variables can be partially explained by factors other than banks technical efficiency performance such as the governments expenditures and banks stock prices.