The determinants of bank efficiency in Malaysia: conventional vs Islamic / Nurul Nabila Amran

This study explores the area of bank efficiency where efficiency has been constantly said to be the leading cause of bank failure. Sometimes bank are not performing well and not efficient in their performance due to some reasons such as non-performing loan, size of the bank as well as poor management. By referring to Berg, Forsund, and Jansen (1992), when non-performing loan exist in business of the bank, it will lead to bank inefficiency. Another reason that may lead to inefficient of bank is size of the bank itself. As refer to El Moussawi and Obeid (2011), some large banks are inefficiency is probably resulted from an inadequate size measure even though they have attained their optimal size. Another reason is poor management. Kwan and Eisenbeis (1994), Hughes and Moon (1995) and Resti (1995) found that banks with poor senior management may have problems in monitoring both their costs and their loan customers. The objective of this paper is to identify the determinants affecting conventional and Islamic banks' efficiency in Malaysia. As for the dependent variable, this study used bank efficiency to indicate outcome of the change brought in the independent variables. Meanwhile, the independent variables that affect the bank efficiency are bank size, liquidity and operational cost. The data is selected from five conventional banks and three Islamic banks. The period begins from 2006 until 2015 on yearly bases, pooled for 10 years. The data can be obtained from Bank Scope, Data Stream and Annual Report.