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Hanen, H., A. Emrouznejad, M. N. Ouertani (2014), Technical efficiency determinants within a dual banking system: a DEA-bootstrap approach, International Journal of Applied Decision Sciences, 7 (4): 382 – 404.

Hanen, H., A. Emrouznejad, M. N. Ouertani (2014), Technical efficiency determinants within a dual banking system: a DEA-bootstrap approach, International Journal of Applied Decision Sciences, 7 (4): 382 – 404.

The purpose of this study is to provide a comparative analysis of the efficiency of the Islamic banking sector in Gulf Cooperation Council (GCC) countries. To this end, we employ a semi-parametric two-stage methodology, where we derive technical efficiency scores via a Data Envelopment Analysis in the first stage. Then scores obtained are regressed on a series of determinants of bank efficiency using a double bootstrapping procedure. Our findings indicate that during the eight years of study, conventional banks largely outperform Islamic banks with an average technical efficiency score of 81% compared to 95.57%. However, it’s clear that since 2008 conventional banks efficiency was in a downward trend while the efficiency of their Islamic counterparts were in an upward trend since 2009. This indicates that Islamic banks have succeeded to maintain a level of effectiveness during the dark period of the subprime crisis after certainly, coming under their secondary effects during 2008-2009.  An investigation of the determinants of bank’s efficiency show that bank size have a significant positive impact on, only Islamic bank’s efficiency, while z-score is related negatively to efficiency of both departments showing that a higher (lower) distance from insolvency reduces (increases) banks’ efficiency. In other words, a stable and reliable system is crucial to foster the efficiency of GCC banks. Finally, for the whole sample, the analysis demonstrates the strong link of macroeconomic indicators with efficiency for GCC banks. But, surprisingly, there is no significant relationship in the case of Islamic banks.

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