Determinants of technical efficiency of Islamic banks in GCC countries

Abstract

Purpose This study aims to discuss the determinants of Islamic banks’ efficiency. It tries to explore the source of Islamic banks’ inefficiencies to propose solutions to guarantee an acceptable level of technical efficiency of such banks in Gulf Cooperation Council (GCC) countries. Design/methodology/approach To achieve this objective, the authors use a parametric approach, especially, the stochastic frontier approach, using production function and panel data analysis. The authors apply a package Frontier 4.1 for the estimation process, which is composed of two principal steps. In the first step, the authors estimate Islamic banks’ efficiency scores in different GCC countries based on an output distance function. In the second step, the analysis highlights the impact of managerial-specific education on Islamic accounting and finance, scarcity of Sharīʿah scholars, the board independence and chief executive officers’ (CEOs) duality on GCC Islamic banks’ efficiency. Findings This study’s results document that managerial-specific education on Islamic accounting and finance and the board of directors’ composition, especially, the board’s independence, can largely explain the technical efficiency scores of Islamic banks in GCC countries. Especially, the authors find evidence that managerial-specific education is negatively associated with the inefficiency term. The coefficient of the Sharīʿah scholar’s variable has a positive sign indicating that the more there are Sharīʿah experts, the more the bank is efficient. In addition, CEOs’ duality seems to have no significant effect on GCC Islamic banks’ efficiency. Practical implications GCC Islamic banks need to improve the presence of independent members on the board of directors. In addition, these banks are invited to count more on Sharīʿah auditors and educated staff characterized by a high level of competency in the domain of Islamic banking and finance. Originality/value To the best of the authors’ knowledge, this is the first study that highlights the effect of managerial-specific education in Islamic accounting and finance and scarcity of Sharīʿah scholars on Islamic banks’ efficiency.

Prediction of Banks Efficiency Using Feature Selection Method: Comparison between Selected Machine Learning Models

“…e interrelationship between high-efficiency scores, adequate managerial processes, and good corporate governance practices are likewise examined [20,[25][26][27][28]. is result is in contrast with that of Galoriotis et al [24] that management practices have a negative effect on efficiency but consistent with Ullah [16] that corporate governance has a positive effect on cost efficiency and Mohamed et al [29] that managerial staff education has a negative effect on inefficiency. Akber and Dey [44] showed that conventional banks have better management and asset quality compared with Islamic banks.…”

“…e interrelationship between high-efficiency scores, adequate management, and good corporate governance practices has been investigated [25][26][27][28]. According to Mohamed et al [29], the education of managerial staff is negatively associated with inefficiency, that is, efficiency increases as the number of Shariah experts in banks management increases.…”

Corruption and bank efficiency: Expanding the ‘sand or grease the wheel hypothesis’ for the Gulf Cooperation Council

“…Moreover, this issue remains largely unexplored in the context of GCC countries. In particular, there is a limited number of studies (Mohamed et al, 2021; Saif‐Alyousfi & Saha, 2021; Saw et al, 2020) that investigate the diverse impact of corruption on bank efficiency with a theoretical perspective. The primary objective of this paper is to provide empirical evidence on the impact of corruption on the efficiency of the GCC banking sector.…”