The relative efficiency of Islamic banks in Malaysia using Data Envelopment Analysis (DEA) approach / Siti Nadia Mohd Zin

The purpose of this paper is to investigate or measuring the relative efficiency of 12 Islamic banks in Malaysia. The purpose of this study is to investigate the efficiency or
performance level of Islamic banks in Malaysia. This objective requires the calculations of efficiency scores of each bank over the selected period. The objectives of this study are to determine input and output of Islamic banks in Malaysia, to rank the Islamic banks base on efficiency score and to recommend the solution to the inefficient bank. Data envelopment analysis (DEA) method was applied to set of data for evaluate or to measure the relative
efficiency of 12 Islamic banks in Malaysia using annual report data. The period covered by the study was from the year 2006 until year 2010. The use of DEA to measure Islamic banks’ efficiency appears especially appropriate since this method does not require the specification of
particular production or cost functions. From the findings, we get the results such as the descriptive analysis for input and output, the correlation between input and output, the slacks between input and output, and the input and output orientation projections of each banks. The results indicate that the performance of several banks is sub-optimal, suggesting the potential for significant improvements. The efficiency banks can be the benchmark for those inefficient banks as this will help and make the inefficient banks become efficient. The Originality or the value of this study is from a policy perspective, the paper highlights the importance of encouraging increased efficiency throughout the Islamic banking industry. The study is also of particular
value in the Malaysia context where there have a lot of Islamic banks and historically all of the Islamic banks growth quite well in this country and be accepted by all of the Malaysians even though have a different religion. It also makes use of to know the score, slacks and projection of the banks based DEA approach, which has not yet been widely used in the banking literature