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RESEARCH POSTERPRESENTATIONDESIGN 2012
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INTRODUCTION
RESEARCH QUESTIONS & RESEARCH OBJECTIVES
METHODOLOGY
FINDINGS CONCLUSION
REFERENCES
CONTACT
Comparison Bank t-test Mann-Whitney U-test
Mean t
value
sig Mean
Rank
z
value
sig
Technical Efficiency Islamic 0.44 6.87 .000 72.04 - 5.68 .000
Conventional 0.13 36.64
Pure Technical
Efficiency
Islamic 0.62 9.67 .000 76.59 - 7.41 .000
Conventional 0.18 30.4
Scale Efficiency Islamic 0.64 -2.754 .000 52.41 -1.734 .000
Conventional 0.77 63.22
Quantitative Method
Nature of the
study
Utilize output-input data from 13 Islamic banks and 10
conventional banks in Malaysia (due to the availability of
data)
Data collection
technique
Annual Report of the banks from 2007 to 2012 Source of data
Data Envelopment Analysis (DEA)
Utilize the assumptions of variable returns to scale (VRS)
Parametric test (t-test) and Non-parametric test (Mann-Whitney
U-test)
Data Analysis
Technique
Fixed Assets
Total Deposits
Inputs
Other earning assets
Total loans
Outputs
Fatin Syazwani Safiyuddin & Norazlina Abd Wahab
I slamic Business School, Universiti Utara Malaysia
Efficiency of Islamic and Conventional Banks during Financial Crisis:
Empirical Evidence from Malaysia
RESEARCH QUESTIONS
To what extent the efficiency of Islamic banks
during financial crisis?
To what extent the efficiency of conventional banks
during financial crisis?
To what extent Islamic and conventional banks are
technical efficient or scale efficient?
RESEARCH OBJECTIVES
To analyze the efficiency of Islamic banks during
financial crisis.
To analyze the efficiency of conventional banks
during financial crisis.
To examine source of overall technical efficiency of
Islamic and conventional banks during financial
crisis.
FINDINGS
YEAR OTE PTE SE
2007 0.666 0.948 0.678
2008 0.614 0.805 0.741
2009 0.678 0.955 0.708
2010 0.854 0.948 0.893
2011 0.832 0.930 0.891
2012 0.731 0.883 0.788
Mean for Islamic banks (2007 to 2012)
YEAR OTE PTE SE
2007 0.562 0.713 0.811
2008 0.937 0.976 0.961
2009 0.707 0.886 0.805
2010 0.827 0.952 0.866
2011 0.772 0.893 0.860
2012 0.779 0.938 0.831
Mean for conventional banks (2007 to 2012)
Return to scale for Islamic banks
YEAR CRS % IRS % DRS % TOTAL
2007 4 50 2 25 2 25 8
2008 5 41.67 3 25 4 33.33 12
2009 5 45.45 5 45.45 1 9.09 11
2010 7 58.33 3 25 2 16.67 12
2011 5 38.46 3 23.08 5 38.46 13
2012 4 44.44 4 44.44 1 11.11 9
OVERALL 30 46.15 20 30.77 15 23.08 65
Return to scale for conventional banks
YEAR CRS % IRS % DRS % TOTAL
2007 3 42.86 4 57.14 0 0 7
2008 4 57.14 3 42.86 0 0 7
2009 4 50 1 12.5 3 37.5 8
2010 4 50 3 37.5 1 12.5 8
2011 3 33.33 3 33.33 3 33.33 9
2012 4 44.44 4 44.44 1 11.11 9
OVERALL 22 45.83 18 37.5 8 16.67 48
Comparison Bank
t-test Mann-Whitney U-test
Mean t
value
sig Mean
Rank
z
value
sig
Technical Efficiency
Islamic 0.44 6.87 .000 72.04 - 5.68 .000
Conventional 0.13 36.64
Pure Technical
Efficiency
Islamic 0.62 9.67 .000 76.59 - 7.41 .000
Conventional 0.18 30.4
Scale Efficiency
Islamic 0.64 -2.754 .000 52.41 -1.734 .000
Conventional 0.77 63.22

Based on the empirical finding of this study, Islamic banks score around 0.614 to 0.854 of OTE
during the study period. In terms of PTE, Islamic banks score around 0.805 to 0.955 while for the
SE, Islamic banks score around 0.678 to 0.893 from 2007 to 2012. In overall, we can see that
pure technical efficiency contributed more to the overall technical efficiency. In other words, the
scale inefficiency leads to the overall technical inefficiency. Hence, we can suggest that
Malaysian Islamic banks have been operating in the wrong scale operations. The resulting
analysis shows that conventional banks score around 0.562 to 0.937 of OTE during the study
period. In terms of PTE, conventional banks score around 0.713 to 0.976 while for the SE,
Islamic banks score around 0.805 to 0.961 within the period of study. In overall, we can see that
scale efficiency, dominated more to the overall technical efficiency.
This study could be an initial effort to analyze the efficiency of Islamic and conventional banks
during financial crisis. In addition, more significantly, is the use of DEA to examine the efficiency
of the banking industry in Malaysia in which the Islamic banks are comparatively analyzed with
the conventional banks. The result of this study have significant contributions to several
interested parties, such as in informing the policy makers such as Bank Negara Malaysia (BNM)
in Malaysia as well as related ministries on the relative efficiency of Islamic and conventional
banks during the financial crisis and whether the source of growth in overall technical efficiency is
due to the pure technical efficiency or scale efficiency.
Ahmad Mokhtar, H.S., Abdullah, N., & Alhabshi, S.M. (2008). Efficiency and Competition of Islamic Banking in Malaysia. Humanomics, 24
(1), 24-48.
Ayub, M. (2007). Understanding Islamic Finance. John Wiley & Sons.
Banker, R.D., Charnes, A. & Cooper, W.W. (1984). Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment
Analysis. Management Science, 30 (9), 1078-1092.
Beck Thorstern, Demirg-kunt Asli, Merrouche Ouarda. (2010). Islamic vs. Conventional Banking Business Model, Efficiency and
Stability. Policy Research Working Paper, (October), 144.
Berger, A.N., & Humphrey, D.B. (1997). Efficiency of Financial Institutions: International Survey and Direction for Future Research.
European Journal of Operational Research, 98, 175-212.
Charnes, A., Cooper, W.W., & Rhodes, E. (1978). Measuring the Efficiency of Decision Making Units. European Journal of Operational
Research, (6), 429-444.
Chazi, A., & Syed, L. a. M. (2010). Risk exposure during the global financial crisis: the case of Islamic banks. International Journal of
Islamic and Middle Eastern Finance and Management, 3(4), 321333. doi:10.1108/17538391011093261
Coakes, S. J. (2012). SPSS Version 20.0 for Windows: Analysis without Anguish. John Wiley & Sons.
Farrell, M.J. (1957). The Measurement of Profit Efficiency. Journal of the Royal Statistical Society, 3, 253-290.
Rosman, R., Wahab, N. A., & Zainol, Z. (2013). Efficiency of Islamic banks during the financial crisis: An Analysis of Middle Eastern and
Asian Countries. Pacific-Basin Finance Journal, 76-90.
Sufian, F. (2004). The Efficiency Effects of Bank Mergers and Acquisitions in a Developing Economy: Evidence From Malaysia.
International Journal of Applied Econometrics and Quantitative Studies, 53-74.
Sufian, F. (2007). The Efficiency of Islamic Banking Industry in Malaysia: Foreign vs Domestic Banks. Humanomics, 23 (3), 174.
Sufian, F., Noor, M.A.M., & Majid, M. Z.A. (2008). The Efficiency of Islamic Banks: Empirical Evidence from the MENA and Asian Countries
Islamic Banking Sectors, The Middle East Business and Economic Review, 20, 1-19.
Wasiuzzaman, S., & Gunasegavan, U. N. (2013). Comparative study of the performance of Islamic and conventional banks: The case of
Malaysia. Humanomics, 29(1), 4360. doi:10.1108/08288661311299312Website Bank Negara Malaysia retrieved at
www.bnm.gov.my.
Yudistira, D. (2004). Efficiency in Islamic Banking: An Empirical Analysis of 18 Banks, Islamic Economic Studies, 12 (1), 1-19.
EFFICIENCY
Maximization
of outputs
Minimization
of costs
Maximization
of profits
Efficiency can be defined as the good usage of resources to maximize the
production of the goods and services of the firms where it concerns with the
relationship between the input resources such as labour costs, capital and
equipment and the output produced using the inputs (Farrell, 1957).
0
0.2
0.4
0.6
0.8
1
1.2
2007 2008 2009 2010 2011 2012
OTE
PTE
SE
DEA Result Movement 2007 to 2012 for Islamic Banks
The efficiency estimates each Islamic and conventional bank from 2007 to 2012 is
computed by utilizing the non-parametric Data Envelopment Analysis (DEA).
Through this method, we can distinguish three different types of efficiency
measures which are overall technical efficiency (OTE), pure technical efficiency
(PTE), and scale efficiency (SE) as shown below.
DEA Result Movement 2007 to 2012 for Conventional Banks
The study shows the Constant Return to Scale (CRS), Increasing Return to
Scale (IRS) or Decreasing Return to Scale (DRS) of the Islamic and
conventional banks. CRS means the increasing in the input results in a
proportionate increase in outputs. In addition, IRS means an increase in inputs
result in a higher increase in outputs, whereas DRS indicates the increase in
inputs result in a lesser output increase. Table below summarizes the details
of each year score for Islamic and conventional banks either CRS, IRS or
DRS.
From the results derived from the DEA method, the issue of interest now is
whether the difference in the Islamic and conventional banks efficiency during a
financial crisis is statistically significant. Hence, Mann-Whitney [Wilcoxon Rank
Sum] has been utilized which is suggested by Coakes and Steed (2003), when
they stated that it is a relevant test for two independent samples coming from
populations having the same distribution. The relevant reason is that the data
violate the stringent assumptions of the independent groups t-test. Thus, the non-
parametric Mann-Whitney [Wilcoxon] test performed along with a series of other
parametric (t-test) to obtain the results.
The findings reported in the table below. The result seems to suggest that Islamic
banks are relatively more technically efficient compared to conventional bank
counterparts.
Fatin Syazwani Safiyuddin
fatinsyazwani_uum@yahoo.com

Summary
Islamic banks Conventional banks
Overall Technical
Efficiency
0.614 to 0.854 0.562 to 0.937
Pure Technical
Efficiency
0.805 to 0.955 0.713 to 0.976
Scale Efficiency 0.678 to 0.893 0.805 to 0.961
Dr. Norazlina Abdul Wahab
norazlina.aw@uum.edu.my