No abstract

Considering the recent shrinkage in Islamic banks' profitability in Bangladesh, this study investigated whether these banks are less efficient than the conventional and mixed banks. Using 250 firm-year observations from 38 private commercial banks for the years from 2011 to 2017 and estimating operational efficiency through the Data Envelopment and Stochastic Frontier Analyses, we found robust evidence that Islamic banks are less efficient than the conventional and mixed banks. In additional analysis, it was found that the lower efficiency of Islamic banks was driven by their noninvestment income. A significant negative shift in Islamic banks' efficiency was evident in the most recent years compared to the earliest periods in our sample window. These findings helped us explain why the relative profitability of Islamic banks has declined recently. We suggest that Islamic banks' management pay more attention to their portfolio of non-investment products and services in order to remain competitive in the fast-growing banking landscape in Bangladesh. Contribution/ Originality: This study contributes to the existing literature on estimating banks' efficiency through the techniques of frontier analysis. While revenue is one of the primary sources of cash inflows, research examining banks' efficiency in generating revenues by utilizing their resources is scarce. We filled this gap in the literature.