Bank Ownership, Characteristics, and Performance: A Comparative Analysis of Domestic and Foreign Islamic

Abstract. The paper investigates the performance of Malaysian Islamic banking sector during the period 2001-2005. Several efficiency estimates of individual banks are evaluated using non-parametric Data Envelopment Analysis (DEA). Two different approaches have been employed to differentiate how efficiency scores vary with changes in inputs and outputs. The analysis links the variation in calculated efficiencies to a set of variables, i.e. bank size, ownership, capital, non-performing loans and management quality. The findings suggest that during the period of study, scale inefficiency dominates pure technical inefficiency in the Malaysian Islamic banking sector. We found that foreign banks have exhibited higher technical efficiency compared to their domestic counterparts. The second stage empirical results based on multivariate Tobit model also suggest that technically more efficient banks are larger, have greater loans intensity, and on average have less non-performing loans