The impact of efficiency on discretionary loans/finance loss provision: A comparative study of Islamic and conventional banks

Shawtari, Fekri Ali; Saiti, Buerhan; Razak, Shaikh Hamzah Abdul; Ariff, Mohamed

doi:10.1016/j.bir.2015.06.002

Cited by 45 publications

(47 citation statements)

References 21 publications

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“…It can be argued that higher profitability can be related to larger banks. However, it does not mean that higher profitable banks are more efficient because efficiency is not the same as profitability (Shawtari et al 2015b). This is one of the shortcomings of profitability measures.…”

Section: Panel Techniques Estimation Resultsmentioning

confidence: 99%

“…They showed that market power is important for the efficiency of the banks. Other studies utilised factors such as non-performing loans, liquidity risks, non-interest/finance income, required reserve by central banks, and profitability as determinants of efficiency (Shawtari et al 2015b). Gunes and Yilmaz (2016) examined the PTE and SE determinants for Turkish conventional deposit banks.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Building on the above discussion, there is a lack of studies that examine the efficiency of banks in Yemen with a rare attempt investigating the total efficiency and its determinants by Shawtari et al (2015b), leaving the scope to expand the literature to decompose efficiency into its types and further shed light on their determinants.…”

Section: Literature Reviewmentioning

confidence: 99%

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Decomposition of efficiency using DEA window analysis

Shawtari

Salem

Bakhit

2018

BIJ

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Purpose-The purpose of this paper is to examine empirically the efficiency types of Islamic and conventional banks. It seeks to show whether the efficiency level of conventional and Islamic banks significantly differs from each other. In addition, it investigates the influential factors on each type of efficiency. Design/methodology/approach-The paper utilises the data envelopment analysis in its windows version to estimate the efficiency scores reflecting the time variance and compares between banking models. The paper uses pure technical efficiency (TE) and scale efficiency to achieve the objective of the study. In addition, the panel data technique is adopted to assess the determinants of the efficiency of the banks econometrically. Findings-The findings of panel regression initially indicate that the pure TE is higher for conventional banks compared to Islamic banks. However, the Islamic banks are more scale efficient than their conventional counterpart. Macro and micro indicators have different impacts on the both types of efficiency. However, the unique factors that show consistent influence on the efficiency types were loans/finance, non-interest income/ finance/liquidity and GDP. Furthermore, the determinants are shaped differently for Islamic and conventional banks when the banking model is controlled for. Originality/value-This paper examines the efficiency types using a unique window analysis approach to examine the types of efficiency with a longitudinal set of data from 1996 to 2011.

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Section: Panel Techniques Estimation Resultsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Decomposition of efficiency using DEA window analysis

Shawtari

Salem

Bakhit

2018

BIJ

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“…The study of Shawtari et al (2015) compares the discretionary loans/finance loss provision (DLLP) of Islamic and CBs operating in Yemen. Using data of 16 banks over the period 1996-2011, the authors tested seven hypotheses with relation to DLLP.…”

Section: Empirical Literaturementioning

confidence: 99%

Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

Chowdhury

Akbar²,

Shoyeb

2018

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and finally, Quoc Cuong Phan and Taha Bhatti for the excellent research assistance in managing some of the papers in this issue. 646 MF 44,6 regarding the effect of these two variables to risk exposure and efficacy of both Islamic and conventional banking systems. In order to add more value to current literature with reference to the differences between Islamic and conventional banking systems, Bougatef and Korbi aimed to study the factors that explain intermediation margins under both Islamic and conventional banks operating in the Middle East and North Africa. By using the dynamic panel modeling approach, they revealed different determinants of net profit margins under these two systems. Utilizing various methodologies including Markowitz's (1952) portfolio optimization, visual data representations and the classic Fama-Macbeth (1973) two-pass procedure regressions, Cheong investigated the ability of the Islamic Gold Dinar to hedge against foreign exchange market volatility. His findings documented a new hedging instrument to diversify investors' currency portfolios. In the later article, Chowdhury, Akbar and Mohammad examined the relationship between Islamic financing principles and economic growth in Bangladesh using auto regressive distributive lags. Having considered all annual reports of Islamic banks in Bangladesh, this group of authors shed light on how the economic growth responds to the risk sharing and non-risk sharing instruments. In the wake of the GFC, predicting financial distress in banking systems has been increasingly more critical in order to prevent future economic downturns. In their paper, Halteh and his co-authors; Kumar and Gepp aimed to forecast the failure by using cutting-edge stochastic models including decision trees, stochastic gradient boosting and random forests to study 101 international publicly listed Islamic banks. Their findings add value to the literature on the issue of Islamic banking and predicting financial distress. To examine the differences in investors' perceptions concerning the response to the issuance of Sukuk and conventional bonds, Hassan, Ahmed and Rayfield observed significantly negative abnormal returns before and after the announcement date of Sukuk issuance. By utilizing linear and logistic regression models, they found an interesting connection: first, between firms' characteristics and these abnormal returns; and second, issuers' preferences between issuing Sukuk and conventional bonds. Mahmood, Gan and Nguyen, by utilizing the two-step system GMM estimation technique on 55 full-fledged Islamic banks from 11 different countries, have analyzed various factors at both firm-specific and macroeconomic levels, in order to explore their impacts on maturity transformation risk. This paper makes an important contribution to studying maturity transformation risk which is considered one of the major causes of the global financial crisis. Md Zabri and Mohammed examined the acceptability of the Cash Waqf-financial cooperative-Musharakah Mutanaqisah (MM) home financing...

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“…Beck et al (2013) reported that the business model for Islamic banks, to a certain extent, is similar to conventional banks, except in their quality of assets and capitalisations which exhibited some differences. Othman and Efficiency, Asset Quality and Stability of the Banking Sector in Malaysia Mersni (2014) and Shawtari, Saiti, Abdul Razak and Ariff (2015) reported that Islamic banks and conventional banks are similar in using their discretion over loan/finance loss provisions. Mirza et al (2015) found that Islamic banks are more stable and secure in terms of their asset quality compared to their conventional counterparts.…”

Section: 2mentioning

confidence: 99%

Efficiency, Asset Quality and Stability of the Banking Sector in Malaysia

Ariff

Shawtari

2019

MJES

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Malaysia practices a dual banking system, where conventional banks coexist with Islamic banks. While conventional banks are well established, Islamic banks are growing rapidly. Since Islamic banks consist of two types, namely stand-alone or wholesome Islamic banks and Islamic subsidiaries of conventional banks, it would be revealing to examine if Islamic subsidiaries of conventional banks differ from standalone Islamic banks in terms of efficiency, stability and assets quality. A few studies in the literature that examine the issue have focused on comparisons between Islamic banks and conventional banks, with no consideration given to the differentiation between the two categories of Islamic banks. In this paper, we attempt to examine the differences among the players in the banking sector in Malaysia. This paper extends the traditional analysis of conventional versus Islamic banks to comparisons between stand-alone Islamic banks and Islamic subsidiaries of conventional banks. Using dynamic panel data "generalized methods of moments" (GMM), the study reports that there are differences among different types of banks, viz. conventional banks, Islamic subsidiaries of conventional parents, and stand-alone Islamic banks. It shows that Islamic subsidiaries of conventional banks perform better than stand-alone Islamic banks as well as their own conventional parents. Furthermore, the results show that Islamic subsidiaries are more stable in term of their financing income compared to the rest of the banks, while the stand-alone banks have lower asset quality in comparison with both Islamic subsidiaries and their parents.

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The impact of efficiency on discretionary loans/finance loss provision: A comparative study of Islamic and conventional banks

Cited by 45 publications

References 21 publications

Decomposition of efficiency using DEA window analysis

Decomposition of efficiency using DEA window analysis

Nexus between risk sharing vs non-risk sharing financing and economic growth of Bangladesh

Efficiency, Asset Quality and Stability of the Banking Sector in Malaysia

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