Comparison of banking efficiency in Europe: Islamic versus conventional banks

Abstract

Many banking efficiency studies have focused on conventional banks. Recently, Islamic banks have opened in many countries and operated in similar fashion to traditional banks. This chapter measures and compares Islamic banking efficiency to conventional banking efficiency represented by three European countries – Germany, Turkey and the United Kingdom. The study covers the period from 2005 to 2008 in measuring the X-efficiency using the non-parametric method, known as Data Envelopment Analysis (DEA). It reveals that Islamic banks are technically more efficient than conventional banks but are beset by lower allocative efficiency. This results in lower cost efficiency for Islamic banks in comparison to the more conventional banks in Europe.

Citation

Ahmad, W. and Luo, R.H. (2010), "Comparison of banking efficiency in Europe: Islamic versus conventional banks", Kim, S.-J. and Mckenzie, M.D. (Ed.) International Banking in the New Era: Post-Crisis Challenges and Opportunities (International Finance Review, Vol. 11), Emerald Group Publishing Limited, Leeds, pp. 361-389. https://doi.org/10.1108/S1569-3767(2010)0000011016