Browsing by Subject "X-Effizienz"

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Ethical banking and finance : a theoretical and empirical framework for the cross-country and inter-bank analysis of efficiency, productivity, and financial performance
(2012) Abu-Alkheil, Ahmad; Burghof, Hans-Peter
Islamic banking is a growing worldwide phenomenon involving a variety of institutions and instruments. Previously, Islamic banks? transactions made up a small part of the total banking industry. Recently, Islamic banks have significantly expanded their network, and have been able to mobilize a large amount of funds and upgrade many economic ventures. Given the unique behavior of Islamic banks and their involvement in both social and economic activities, there has always been a question about their long run financial sustainability, particularly in adverse market conditions. Thus, a reliable and unbiased estimation of Islamic banks?efficiency and productivity performance is essential for the evaluation of Islamic banking operations within and outside its traditional borders of Muslim economies. Due to the short history of Islamic banking in Europe, and consequently the lack of sufficient data, empirical researches on the financial performance of Islamic banking have concentrated primarily in Muslim-majority countries and focused on the theoretical issues and descriptive statistics rather than rigorous statistical and econometric estimation. The main purpose of our analysis is to bridge this gap in the global and cross-country literature and to contribute to the ongoing debate regarding the performance of Islamic banking. Therefore, the orientation of this thesis is chiefly quantitative in nature. The aim of this thesis is primarily to shed some light on the emergence and the continual global growth of Islamic banking all over the world. It also tries to assess, for the first time, the relative performance of Islamic commercial and investment banks operating in Europe against counterparties-conventional banks in Europe and also against Islamic banks from Muslim-majority countries. Our methodology in this academic work clearly differs from the literature researches. This thesis is, basically, divided into two main parts. In first part, we specifically discuss the basic features and principles of the Islamic banking and finance. We then reviewed several in-depth market analysis results concerning Islamic banking and finance that were performed by well-known specialized financial institutions. In the second part, we primarily utilize different empirical approaches to examine the performance of our sample banks which shows a great variety, ranging from large active banks to new and small banks. More specifically, we use the Data Envelopment Analysis (DEA) method to calculate the commercial banks? efficiency scores and investment banks (cost)-X-efficiency levels; the DEA-based Malmq- uist Productivity Index (MPI) to estimate the banks productivity indices; the common financial ratios to measure the banks financial performance; the T-Test to determine the differences of investment bank's performance pre- and post- the financial crisis that hit the world?s economy in 2007; the Ordinary Least Squares (OLS)-regression to determine the impact of internal and external factors on bank's efficiency and also to check the robustness of the overall results obtained from DEA scores; Spearman's rho correlation to investigate the association of the DEA-efficiency scores with the traditional accounting ratios; and eventually the efficiency?profitability matrix in order to determine the characterization of the banks' performance and the factors that influence efficiency. Our analysis is carried out, primarily, over the period from 2005 to 2008. This indeed helps to account for the impact of the recent financial crisis on the efficiency and productivity performance of the selected banks. The preliminary review of the market surveys-based analysis shows that the Islamic finance and banking is one of the fastest growing sectors in the financial world. Islamic financial products and services are increasingly being regarded as a viable investment opportunity, making them very attractive for Muslims and non-Muslims alike. Leading Islamic banks from Muslim countries are expanding their network. Several European banks have directly involved in providing Islamic financial products in order to satisfy the special needs for Muslim customers and the non-Muslims who seek ethical financial and investment solutions. Eventually, European governments have also started to amend their legal, tax, and regulatory systems to allow the establishment of Islamic banks. Most importantly, from an empirical point of view, our presented results suggest that the Islamic commercial banks in Europe are found to be relatively technically inefficient. They have also, on average, poor financial performance and under-performing practices. Moreover, Islamic banks in Europe actually suffer from significant productivity losses over the sample years driven, to a large extent, by the regress in banks? technology innovations. By and large, the bank?s inefficiency stems from both the sub-optimal size of operations and the lack of management knowledge and skills. Findings suggest that the optimal size for Islamic banks to achieve better levels of performance is neither large nor small rather medium. Therefore, increasing banks size through mergers and acquisition will substantially enhance their technical efficiency and productivity progress. The period prior to the current financial crisis was marked by the most stable economic environment for generations. Our results illustrate that Islamic banks lag relatively, before the emergence of the crisis, behind their conventional peers in terms of estimated efficiency scores and productivity changes. Strikingly, conventional banks gradually lose their superiority over Islamic banks in subsequent years, but remain, on average, a head of Islamic banks. Islamic banks are, indeed, less vulnerable to the effects of the crisis as compared with counterparties-conventional banks. They exhibit only slight inefficiency and productivity regress during this severe crisis and therefore, produce a consistent and remarkable positive trend in technical efficiency, productivity performance, and financial profitability. This might be because of the beliefs in the power of petro-dollars in the Gulf region, the fact that the Islamic banks are relatively small and young at present, and could also be due to the religious financial constraints. Such factors might have played an important role in preventing Islamic banks from being severely affected by the crisis. Overall, results suggest that the small and new Islamic banks in Europe can be as efficient and productive as large and old Islamic and conventional banks. They also have long run sustainability, substantial room for improvements, and a great potential in the banking industry to sustain their competitive edge not only in Muslim countries but also in the European financial system. The estimated findings pertaining to the performance of Islamic investment banks in Europe suggest that these banks experience low (cost)-x-efficiency and poor allocative-efficiency compared with counterparties-conventional banks. Bank?s inefficiency is caused largely by the under-utilization of inputs, the bank's diseconomies of scale, and also appears to be due to the regulations not controlled by management due to fluctuations and instability in factor prices. Islamic investment banks additionally show a clear paradox between their high calculated efficiency scores and low achieved profitability ratios. They are also less risky, more solvent, and operate with lower use of debt. Nevertheless, Islamic investment banks suffer a gradual deterioration in liquidity position. The banks' supply of Murabaha (cost-plus loans) financing appears to be most dominant and has increased significantly in importance. Overall, findings seem to reveal that the banks that are technically more efficient are larger in size (total assets), financially more profitable, have greater loans intensity, acquire lower levels of debt, invests more in appropriate human skills, have a lower market share (total deposits), and operate in countries with higher GDP-per capita. Such results reflect the strong and high association between the DEA-efficiency measures and the standard accounting measures, suggesting that the DEA approach can be adopted separately or concurrently along with financial ratios to make comparisons of Islamic banks performance more robust.