Islamic Banks Efficiency and Its Determinants in Pakistan

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Islamic Banks: Efficiency and its Determinants in PakistanAuthor(s): AZEEM SARDAR, MUHAMMAD MASOOD AZEEM, TANVEER AHMED and SANIAZAFARSource: Islamic Studies, Vol. 50, No. 3/4 (Autumn - Winter 2011), pp. 423-434Published by: Islamic Research Institute, International Islamic University, IslamabadStable URL: http://www.jstor.org/stable/41932605 .Accessed: 06/09/2014 06:04

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Islamictudies 0:3-4201 pp. 23-434

Islamic Banks: Efficiency and its Determinants in

Pakistan

AZEEMSARDAR,MUHAMMADMASOODAZEEM,TANVEERAHMED,SANIAZAFAR

AbstractThis tudywasconductedofind outthe fficiencyf slamicbankingn PakistanThere re 18 Islamicbanks urrently orking n Pakistan. t includes he slamicbankwindowsfconventionalanks outofthese here refivepure slamic anksHoweverthedataof 15Islamicbankswere vailablewhichwere ollectedortheperiod2008 to 2010. Non-Parametricpproach.e. Data Envelopmentnalysis(DEA)wasapplied o estimate he cale income nd technical fficiencyf slamicbanks. actors ffectinghesefficiencieseredeterminedy pplying obitmodelThemajor indings f he tudy ere hat cale fficiencyf slamicbankswashigherascomparedo the echnicalnd incomefficiency.oreoverslamic anks fficiencywas mproving ith he assage f ime.The tudy lsofound hat ure slamic anksweremore fficients comparedslamicbanksbranchesperated y conventionalbanks.This tudy uggestshat slamicbanks hould ncrease otal ssets nd profitbecause hese ariables avepositivempacts n efficiencywhile iabilitieshowednegativempact.

1. Introduction

Islamicbanking has been introduced n various countries only recently s analternative to conventional banking, yet its growth is rapid. The centralquestions which arise with the growth of this industry are; whether thesebanks are performing fficiently? re pure Islamic banks more efficient hanthe Islamic banks windows of the conventional banks?What are the factorseffecting he efficiency f these banks? Furthermore t is pertinent o ask as towhether these banks are capable of thriving under the highly imminentcompetitive business environment from the conventional banks, whilekeepingfull compliancewith the rules definedby Islamicshari'ah?These andmany other related questions necessitateempirical research on these issueswithin each individual country framework.Keepingin view these questions,

our study attempts o measure the efficiency f Islamic banks and Islamicbank







424 AZEEMARDAR,UHAMMADASOODZEEM,ANVEERHMED,ANIAAFAR

windows of the conventional banks operating n Pakistan. In our sampleforthe present study, the following are Islamic Banks: Albaraka IslamicBank,Dawood IslamicBank,Dubai IslamicBank,MeezanBank,and Bank Islami.

SinceIslamic banks around the world are in their early stage of operation,there are limited empiricalresearchstudieson the efficiency f these banks.Most of the research done in Pakistan on this issue is either theoretical orpreliminary s reported by Khattak, Rehman and others.1This is because ofthe fact that Islamic banking industry s in its infancy n Pakistan. Althoughone decade has gone since its inception yet it cannot be comparedwith theflourishing,well established conventionalbanking in this country. As Rizviobserved, this could precisely be the reason that study on efficiency

measurementof conventional banks is well documented as opposedto the caseof Islamic banking efficiency.2The literature n the performancemeasurement f Islamic banksprovides

a useful insight and also serves as a motivation of our work. Yudistiriacompared the efficiency f 18 Islamic and conventional banks in Malaysiabyemploying Data Envelopment Analysis (DEA).He measuredtechnical,puretechnical and scale efficiencies f all these banks and came to two conclusions:one; that inefficiency f these banks is small (10%),however, considerableascomparedto conventional banks, two; the variations n the efficiency coreofthese banks is mainly determinedby the 'country specific factors.'3Mokhtarand others measured the efficiency f pure Islamic banks and Islamic bankwindows in Malaysia.He used the stochasticfrontier pproach to measure thetechnical and cost efficiency. His study revealed that conventional banksefficiency is higher than that of Islamic banks; however, the marginalefficiency f Islamic banks is higher and increasinggradually.This study alsoconcluded that pure Islamicbanks were more efficient han the Islamic bankwindows of conventional banks.4 Sufian examined the performance f Islamicbanks operating in Malaysiafrom 2001-2005.5 He alsoused DEA approach

1N. A. Khattak,nd K. Rehman,CustomeratisfactionndAwarenessf slamicankingSystemn Pakistan, frican ournalfBusinessanagement(2010):662-671,May2010.Availablenline t http://www.academicjournals.org/AJBM,SSN1993-8233;. Ahmad, .A.HumayounndU.Hassan,AnAnalysisf Functionserformedy slamicank:A CaseofPakistan,uropeanournalf ocialciences,7 2010),.2S.F. A. Rizvi, PostLiberalizationfficiencynd Productivityf the Bankingector nPakistan, he akistanevelopmenteview,0Part I(Winter001),:605-632.3D. Yudistiria,Efficiencyn Islamic anking: n Empiricalnalysisf Eighteenanks,Islamic conomicstudies,2 2004),:1-19.4H. S.Mokhtar, . Abdullahnd . M.Al-Habshi.Efficiencyf slamicankingnMalaysia:A Stochasticrontierpproach, ournalf conomicooperation27 2006),:37-70.5F. Sufian,The

Efficiencyf slamic

ankingndustry:Non-Parametric

nalysisith on-

discretionarynput ariable,slamic conomictudies,4 2007),o. 1and :53-87.







ISLAMICANKS:FFICIENCYNDTS ETERMINANTSN AKISTAN ^25

and concluded that scale inefficiency revailed over pure technical nefficiencyin the studied slamic banks. In addition to this, he assertedthat foreignbanksare technically more efficient s compared with domestic ones which aresound in terms of scale efficiency.Bader, Arif and Hassan also conductedresearch o find out efficiency f slamic versus conventional banks.6They alsoappliedData Envelopment Analysis (DEA)to measure and compare the cost,revenue and profit efficiencies. hey concluded that there was no significantdifference etween Islamic versus conventional banks on the basis of overallefficiency. Although, Islamic banks exhibited relatively better efficiencyperformance as compared to conventional banks, yet differences re notstatistically ignificant. Moreover, all those banks studied proved to be more

inefficient n revenue efficiency han the cost and profit efficiency. hahid,Rehman, Niazi and Raoofcomparedthe efficiency f five Islamic versus fiveconventional banks in Pakistan.7They found out the technical, cost andallocative efficiencies f these banks by utilizing DEA. Their results ndicatethat the Islamic banks competedwell with the conventional banks in cost andallocativeefficiency.However the technical efficiency f conventional bankswashigher than that of the slamic banks.

From the precedingreview of literature, t emergesthat the findings nthe efficiencymeasurementof Islamicbanking around the world presents amixed picture. There is considerable diversity n the literature as to howefficiently he Islamic banks are performing n different arts of the world.This diversity s not only restricted o the overall efficiency core but alsoamong various types of efficiency .g. technical, scale, cost, allocative etc.From the dearth of literature on Islamic banks efficiency nd the enormousvariation in the results of availableresearch, t is thus essential to measureefficiency f Islamic banks and its various determinants n each individualcountry pecific framework.

The present study s significant n the sense that it is designedto providethe empirical reference from Pakistan on the efficiency measurement of

IslamicBanks. On onehand, this study fills the researchgap on this issue inPakistan, while on the other hand it usefully contributes to the overallavailableliterature n this subject.In addition to efficiencymeasurement, hisstudy alsoattempts o find out factors ffecting he efficiency f Islamic banks

6M.K. I.Bader,.Mohammad,.Arif, ndT. Hassan, Cost,RevenuendProfit fficiencyof IslamicVersusConventionalanks: nternationalvidenceUsingDataEnvelopmentAnalysis,slamic conomicstudies152008): 23-76.H. Shahid, ., RamizurRehman, .S.K.Niazi andA.Raoof,Efficienciesomparisonf

Islamic nd Conventionalanks fPakistan,nternationalesearchournalfFinance ndEconomicsSSN1450-2887,9 2010).ttp://www.eurojournals.com/finance.htm.








operating in Pakistan. For the measurement of efficiency, his study focusesexclusivelyon the Islamic banking ndustry s a whole which includes the fullHedgedslamic banks and the slamic bank windows of the conventional banksoperating n Pakistan. This way, it providesthe efficiency omparisonof thepure Islamic banks with those being run by the conventional banks. Ourstudy employs non-parametric pproach that is Data Envelopment Analysis(DAE). DEA has aquality that it can estimate efficiency ven if the samplesize is small. Since,the member of Islamic banks in case of Pakistan is small;DEA is best suitedtechnique for efficiency nalysis of Islamicbanking.Thistechnique can also evaluateyearly performance f individual banks, which ishelpful to study the individual bank performance rom ast few years.For the

investigation f various factors nfluencing heefficiency f Islamic banks,ourresearchemploysTobit model. Results of the model are helpful for providingappropriate suggestionsfor the improvementof efficiency f Islamic banks inPakistan.

2. MethodologyCharnes and others8 introduced DEA for performance evaluation. Asmentioned earlier, due to small number of Islamic Banks in Pakistan DEA isbest suited technique because it can estimateefficiency ven if the samplesize

is small. It is a linear programming technique which evaluates the relativeefficiency f decisionmaking units and also provides the best level of inputand output mix. Sufianexplainedthat this techniquecan also evaluateannualperformance f individual banks.9

The efficiency an be measuredbyH m

Eb= i»i outputib/M inputjb,or- 1, ,nandj«l ,m. (2.1)Where outputib represents he ith output of bth bank and wi shows the

weight assignedto output. Similarly nputjb is the ith input of bth bank andwj is weight associated with input. This efficiency atio Eb is maximizedbyselectingoptimal weights ssignedto input and output.

^ Wiut outputik/i-i nputjk 1, or - 1 N andwi ndwj> 0, (2.2)

The equation 2.2 shows that efficiency atios must be either 1 or less than1. Moreover weights of input and output must be positive. The optimal

8A.Chames,W.W.CooperndE.Rhodes,MeasuringfficiencyfDecisionMakingnits,

EuropeanournalfOperationalesearch,

(1978),29-44.

' F.Sufian,The fficiencyf slamic ankingndustry.







ISLAMICANKS:FFICIENCYNDTS ETERMINANTSN AKISTAN

weightsof input and output are determined by convertingnon-linearfunctioninto linear function for bth bank.

3. Data and Model Specification18 Islamic banks are exercising Islamic modes of banking operation inPakistan. In this study, data of 15Islamicbanks were collected for the periodranging from 2008 to 2010. The data for the rest of three banks were notavailable for the time period specified being investigated. Data was collectedfrom financial tatements f the banks.In this study, hreetypes of efficienciesincluding scale, income and technical efficiencies were estimated underconstant returns o scale (CRS)and variable returns o scale (VRS) byapplyingDEA. Inputs used for measuring technical efficiency were deposits andoperatingfixed assets while outputs were advances and investment.Similarly,total revenue and total expenditures were taken as output and inputrespectively o measure ncomeefficiency.

To find the determinants of above mentioned efficiencies,followingTobit model was used

Yjt C+ai nTASETjt02nTLIABIjtcu nTPROFITjtounNOBjt asDPUBLICjt+ctòDFPREIGNjtctfDPISLAMICjtO8D2008jya9D2009jtaioD2010jt/xjt (3)

Where ai, 012 aio are the coefficients f variables.

The quantitativevariables ncludedin this model are: TASETjt, which istotal assets of j-th bank; TLIABIjt, which is total liabilities of j-th bank;TPROFITjt, which is total profit of j-th bank and NOBjt, which is totalnumber of branches of j-th bank. Natural log was taken of all thesequantitative variables for the purpose of analysis.The qualitative variablesincorporated in the model are represented by dummy variableswhich are:DPUBLICjt,which was for public owned bank; DFOREIGNjt, which is forforeign owned bank; DPISLAMICjt,which is for pure Islamic bank andD2008, D2009, D2010

representthe

years2008, 2009,2010

respectively.f

banks exhibit these qualitativecharacteristics hen assignvalue one to thesedummyvariables other wise 0. This model is appliedon eachtype of efficiencyby taking them asdependentvariable one by one.

4. Results and Discussion

4.1. Technical andScaleEfficiencyTechnical and scale efficiency f Islamic banks in Pakistan were calculatedunder constant and variablereturns o scale for the years 2008 to2010.Table 1depicts that five banks in 2008 were technically efficient nder CRS, while







42g AZEEMARDAR,UHAMMADASOODZEEM,ANVEERHMED,ANIAAFAR

nine were technically fficient nder VRS. The table alsoshows that technicalefficiency nder VRS washigher than CRS in 2008. Themost inefficient ankunder CRS in 2008 was Bank Al-Flah. This bank canbecome efficient f itreducesinput level to 52.4% from the level currently n use. It was also foundthat Bank Al-Habib was most inefficient ank in the sameyear under VRS.This bank can become efficient f t reduces nput level to 33.1% fromthe evelof currently n use. The reason for the low efficiency f these banks can beexplainedon the ground that banks are openingnew windows which are moreprobable to generate nefficiency. We also found that there were five bankswhich were scale efficient. nly one bank was operatingat increasingreturnsto scale (1RS),five at CRS and restof eight banks were operatingat decreasing

returns o scale (DRS).In 2009,four banks were technically fficient nder CRS and eight banksunder VRS. Similarly, four banks were scale efficient n this year. There wasno bank operating at 1RS while 10 banks at DRS and five were operating atCRS. Bank AL-Flah was the most inefficient ank under CRS; while SoneriBank was the most technically nefficient nder VRS. The averagetechnicalefficiency n 2009 was less as compared to 2008. The reason for thisphenomenon is also grounded n the fact that many new branchesopened upin this year as compared to previous ones which added up the fixed cost ofthese banks.

There were five banks which were technically fficient nder CRS and 10banks under VRS in 2010. It was alsofound that five banks were scale efficientin this year. There were four banks operating at 1RS and five banks at DRS.The technicalefficiency cores of the banks were higher than both of previousyears which meant that Islamic banking efficiency was increasingwith thetime. The results of study showed that the most inefficient ank in this yearwas BankAL-Falah.

Table 1 also shows that averageefficiencies f pure Islamicbanks* werehigher than the Islamic banks branchesoperated by conventional banks. This

is due to the fact that pure Islamic banks have more branches than the Islamicbanks branches of conventional banks.National Bank and StandardCharteredwere the most efficient banks. These banks were fully technicallyefficientunder CRS and VRS andalso under Scaleefficiency.

4.2. FactorsEffecting n Technical and ScaleEfficiencyTable 2 shows the results of various determinants which effect echnical andscaleefficiency. t was found that quantitativevariable of profit LNTPOFIT)and total assets LNTASET)had positive mpact on technicalefficiency, hile

number of branches (LNNOB) and total liabilities (LNLIABI) affected







ISLAMICANKS:FFICIENCYNDTS ETERMINANTSN AKISTAN ^29

negatively. he positiverelationship f assets nd profit with technical fficiencyis in Une with results obtainedby PasiourasSifodaskalakis andZoupounidis.10Whilenegative mpact of liabilitieswas similarto the findings f Sathye.11

The study reveals that dummy variables of pure Islamic banks(DPISLAMIC)and public owned banks (DPUBLIC)had positive impact onefficiency.Dummy variable of year 2010 had significant ositive impact onefficiency t 1 % level of significance nd it depictedthat n 2010 Islamic bankshas became more efficient s comparedto previousyears.

TABLE 1:TECHNICAL AND SCALEEFFICIENCYSCORESOF ISLAMICBANKS

Buk» T.E*2008 S.E** R.S' T.E2009 S.E ILS T.E2010 S.E| TtSName 2001 2008 2009 2009 2010 2010CR I VRS CRS VRS CRS VRSAlbaraka0901 I 0901 ďřš 0714 i 0714 ďiš Ï ī i ČišIslamicBankBank 0476 07740615 ďřš 041 09570429 ďřš 0783 0994 0787 5řšAlfaiahAskari 0.708 0.976 025 drs 0.7050.9870.714 drsBankBank āī 0658 06690983 īrs 0915 ī 0915 ďřš ī ī ī cřšHabibTheBank 1 1 1 ers 0.739 0.801 0.923 drs 0.945 1 0.945 1rsof hyberDawood Õ842 Ī 0842 ďřš 064 0996 0642 ďřš 0.764 0 67 0996 5řšIslamicBankDubai Ï 1 Ī řřš 0679 ī 0679 ďřš 0873 ī 0873 DršIslamicBankHabib Õ8Õ6 097 0831ďřš ī ī ī řřš ī ï ī cřšMetropolitanBankBankslami 0.5061~ 0.506 drs 0433*.9010.481 drs 0.718~~.8820.814DrsMCB 1 1 1 crs 1 1 1 crs 0.804 0.8090.994 1rsMeezan 0.716 1 0.716 drs 0.391 1 0.391 drs 0.756 1 0.756 DršBankNational - - - - 1 1 1 crs 1 1 1 CrsBankSoneri ī ī ī crs 0487 0534 0912 cřš 0902 I 0902 ířšBankStandard 1 1 1 crs

.11 1 crs 1 1

1 CrsCharteredUBL ~ 0.649 0.687 Õ.944rs ~ .858 0.95 0.903 ďřš 0959 Ī 0959 iřšMean 0.804 0.9340.862 0731 0.942 0.78 0.893 0.961093^Technicalfficiency*ScalefficiencyReturno cale

10F. S.Pasiouras,.S.,E.SifodaskalakisndC.Zopounidis,stimatingndAnalyzinghe ostEfficiencyfGreek oportive anks: nApplicationf Two tage ataEnvelopmentnalysisWorking aperSeriesUK:Schoolof Management,niversityf Bath, 007.12)UK;T.Ahmed, fficiencynalysisf Commercialanks n PakistanFaisalabad:epartment fDevelopmentconomicsniversityfAgriculture,008).11M.

Sathye,X-efficiencyn Australian

anking:n

Empiricalnvestigation,ournalfBankinginance5 200 )61 -30.







ISLAMICANKS:FFICIENCYNDTS ETERMINANTSN AKISTAN 43

4.3. Income and ScaleEfficiency

Table 3explainsthe Income and Scale efficiencies f Islamic banks in Pakistan.These are presentedfor the years 2008to 2010 as under. The determinants fthese efficiencies re givenin table 4. Table 3 revealed that one Islamic bankwas income efficient nder CRS in2008,while three under VRS. This showedthat income efficiency f Pakistan's Islamic banks was very low. The reasonfor the low efficiency f these banks can be explained on the ground thatbanks are opening new branches which are more probable to generateinefficiency. he UBL was the most inefficient ank under CRS. This bankcan become efficient f it reduces input level to 90 % from the level ofcurrently n use. The study also found that even under VRS UBL was themost inefficient ank in the same year. This bank can become efficient f itreduces the input level to 89.7 % from the level of current use. In this study,we found that only Standard Chartered Bank was scale efficient. ive bankswere showing 1RS and one CRS whilethe rest of the eight banks wereoperating t DRS.

In 2009,one bank was income efficient nder CRS and four banks underVRS. It was found that one bank was scale efficient n this year. There werefour banks operating under 1RS and 10 banks under DRS while one wasoperatingunder CRS. Dawood Islamic Banks wasthe most income inefficientbank both under CRS and VRS. On the other hand in scale efficiency,National Bank had lowest score. The averageincome efficiency n 2009 washigher s comparedto 2008.

There was one bank which was income efficient nder CRS and threebanks under VRS in 2010. It was also found that there was one bank whichwas scaleefficient n this year. There was no bank operatingunder 1RS and 12other banks were operatingunder DRS. Theaverageincome efficiency coresof Islamic banks were almost same in 2009 and 2010but higher than 2008.These results showed that Islamic banking efficiency was increasing. Theresultsof the study showed that the most income inefficient ank in this yearwas DawoodIslamic Bank.The table 3 also showed that averageefficiencies fpure Islamicbanks were lower than the Islamic banks branches operated byconventionalbanks. The findings f this study are in line with the results ofMokhtar et al. (2006).If we comparethe public banks*with private banks, tis revealed that the Public banks' efficiencywas higher. The most efficientbanks under incomeefficiency ere National Bank.

(•Nationalank ndTheBank fKhyberrepublic anks.)








TABLE 3: INCOME ANDSCALE EFFICIENCYSCORESOF ISLAMIC BANKS

Banksame LE*008 S.E**KS* LE009 S.E R.S LE 010 S.E2010 LS2008 2008 2009 2009 2010CR VRS CRSVRS CRS VRS

AlbarakaQ 25 Q412 03Q3 Dr Q(M Q61 Q399 d[S Q 6 Q 26 Q1 dfSIslamicank

Banklfalah .194 0.745 0.26 Drs 0.377 1 0.377drs 0.3480.957 0.363 drs

Askariank 0.181 0.434 0.417Drs 0.234 0.51 0.458dn

BanklHabib 0.379 0.458 0.826 1rs 0.585 0.79 0.741irs 0.5870.598 0.981 drs

The ankf Q 25 Q63 Dn Q 94 Q 89 Q dfs 0.837 0.675 drsKnyberDaw(x>dslamicQ Q76 Q 46 Drs 0 92 Q 3 04Q1 dfS 0Q4 Q 09g drsBank

Dubaislamic0.123 0.579 0.212 Drs0.2710.7630.355drs 0.2480.721 0.345 drsBank

HabibMetropolitan.625 0.677 0.9221rs 1 1 1 en 1 1 1 Crs

BankBankslami 0.1130.463 0.243 Drs 0.153 0.433 0.354 drs0.2120.621 0.342 Drs

MCB 0.479 0.48 0.997 1rs 0.673 0.853 0.789drs 0.3430.474 0.724 Drs

MeezanBank.198 1 0.198 Drs0.338 1 0.338 drs 0.305 1 0.305 Drs

Nationalank .... 0.178 1 0.178 in

Soneriank 0.315 1 0.315 In 0.28 0.28 0.999irs 0.2320.287 0.81 Drs

Chartered 1 1 1 Cn 0.476 0.954 0.499dn 0.617 1 0.617 Drs

UBL 0.0990.103 0.959 In 0.352 0.716 0.492dn 0.1870.291 0.644 Dn

Mean 0.301 0.583 0.547 0.38 0.719 0.532 0.3530.594 0.629

*Incomefficiency*ScalefficiencyReturno cale







ISLAMICANKS:FFICIENCYNDTS ETERMINANTSN AKISTAN 433

FACTORS EFFECTING INCOME AND SCALE EFFICIENCY

Table 4 shows the results of various factorswhich

effectncome and scaleefficiency. t reveals that total profit LNTPOFIT), total assets (LNTASET),

dummy variables of years 2009 and 2010 and the public owned banks(DPUBLIC) had positive impact on income efficiency, while number ofbranches (LNNOB), total liabilities LNLIABI),constant of the equation anddummy variables of pure Islamic banks (DPISLAMIC)and foreign ownedbanks (DFOREIGN) effect negatively. Assets of Islamic banks havesignificantly ositive impact on income efficiency, imilar to that of reportedby Pasiouras.13Dummy variable of year 2010 had highly significant t 1 %level of significance n the case of income efficiency;where as the no. ofbranchesdepicted highly negative mpact.

The determinants of scale efficiency iven in Table 4 are presented asunder. Dummy variable of year 2010 at 5% level of significance andquantitativevariable of equationi.e. assetswere found significant t 10 % levelof significance nd had positiveimpact on scaleefficiency. n the other handnumber of branches,foreign wned banks,profit nd constant of the equationhad negativeeffect n scale efficiency, hich is evident from the table.

TABLE 4:DETERMINANTS OF INCOMEAND SCALEEFFICIENCYINCOME

EFFICIENCY Coefficient Std. rror Z-StatisticD2009 0.121281 0.056244 2.156316**D2010 0.143694 0.059771 2.404064*»»

DFOREIGN -0.06771 0.066413 -1.01946DPUBLIC 0.125024 0.105546 1.184545LNNOB -0.26666 0.05268 -5.06196»»»LNLIABI -0.01892 0.068158 -0.27753

LNPROFIT 0.071154 0.031792 2.23807»»LNASET 0.173726 0.102565 1.693817»

DPISLAMIC -0.00024 0.080212 -Q.QQ302C -2.29444 0.722344 -3.17639»»»

SCALEFFICIENCY ~D2009 0.056161~ 0.069844 0.804095D2010 0.177705 0.074224 2.39419»»DFOREIGN -0.12334 0.082471 -1.4956

DPUBLIC 0.123799 0.076379 1.62085»LNNOB -0.23478 0.065418 -3.58895»»»LNLIABI 0.03323 0.084638 0.392613

LNPROFIT -0.00559 0.03948 -0.14168LNASET 0.136017 0.079156 1.718336»

DPISLAMIC 0.005079 0.099607 Q.Q50986C -0.33348 0.897003 -0.37177

***significantt 1% evelf ignificance,significantt 5% evel f ignificance,significantt10%evel f ignificance

13F. S.Pasiouras,.S.,E.SifodaskalakisndC.Zopounidis,stimating

ndAnalyzing

he ostEfficiencyfGreekoportive anks.








5. Conclusions

This study attempted to measure the performance of Islamic banking inPakistanthrough efficiency nalysis from period 2008 to 2010.In conclusion itcan be said on the basis of the findings that efficiency f Islamic banks inPakistan is increasinggradually.However, the income efficiency core of pureIslamic banks was low as compared to technical efficiency. This could bebecause of the fact that most of these banks were openingnew brancheswhichescalated the cost and reduced the overall efficiency f operation. We alsofound that pure Islamic banks were more efficient s comparedto the Islamicwindowsof conventional banks.Moreover,the publicbanks were found to bemore efficient han the privatebanks.

Since our study also estimated the factors affecting he efficiency ofIslamic banks, we found that asset and profit had the positive effect whileliabilitiesand the number of branches effected fficiency egatively.

SUGGESTIONS

On the basis of the findings f this study, t is suggested hat the Islamic banksshould improve their total assets and the profits. While the liabilities of thebanks should be decreased as it generates nefficiency s per the findings f thisstudy. Moreover, the decision to open up new branches should be verycalculated and consideredonly if the bank is working efficiently, ot just forthe sake of expandingthe area of operation.It should take place only when itis extremely necessary.However expansionshould not be stopped, but mustbe well calculated.

$ $ $

Islamic Banks Efficiency and Its Determinants in Pakistan

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