Inernainal Jurnal f Business and Scie Vl. 6 N. 205 9-38 MALAYSIAN ISLAMIC BANKS EFFICIENCY: AN INTRA-BANK COMPARATIVE ANALYSIS OF ISLAMIC WINOWS AN FULL-FLEGE SUBSIIARIES Oladipup Luqman Salami Universi Technlg Pernas Adewale Abideen Adeemi Inernainal Islamic Universi Malasia ABSTRACT This paper aims fill an apparen dearh f empirical sudies ha cmpare he efficienc f Islamic bans in Malasia during heir perain as Islamic windws and laer ransfrmain full-fledged Islamic bans. aa bained frm he annual financial reprs f he sampled bans is analzed using he aa Envelpmen Analsis (EA) via EAP 2. sfware assess bh he echnical and scale efficienc f he bans under sample. Resuls bained indicae ha he bans have imprved ver he ears in erms f bh scale and echnical efficienc alhugh he frmer aes prminence. In general he bans were fund be mre efficien as Islamic windws cmpared being full-fledged subsidiaries. This augurs well fr he curren dispsiin where as per he Islamic Financial Service Ac 203 Islamic bans in Malasia ma nw perae as full-fledged bans frm heir hiher Islamic baning windw saus. Kewrds: Scale Efficienc; Technical Efficienc; Islamic Windw; Full-Fledged Bans.. INTROUCTION The baning indusr is arguabl he ms regulaed in an par f he wrld. This ma be due a plehra f reasns including he naure f heir prduc mne as well as heir dual bu cnflicing bligains f liquidi and prfiabili heir depsirs and sharehlders respecivel. As such he need fr bans be efficien cann be discuned. As righl ned b Sufian (2007b) facrs lie glbalisain deregulain financial innvain ec and heir cnsequenial implicain fr financial sabili adverises he need fr bans place perfrmance upn hemselves sr hrugh he fen-impassined argumens. Therefre i is b design raher han happensance ha recenl numerus plicies and academic aenin has been placed n bans efficienc (Hasan Keer & Wedw 2009). Hwever in cnras Crrespnding auhr: eparmen f Finance Kulliah f Ecnmics and Managemen Sciences Inernainal Islamic Universi Malasia. Email: abidewale@iium.edu.m
20 Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries he enrmus researches n baning efficienc especiall frm he cnveninal perspecive a dearh f empirical sudies frm he Islamic baning perspecive leaves a lacuna in he ean baning efficienc lieraure. This is raher irnical especiall viewed agains he bacdrp f he mnumenal grwh winessed in he Islamic baning indusr since he earl 2000 (Laldin 2008). The Islamic baning ssem (IBS) is graduall becming a glbal phenmenn and i is incnrverible ha Malasia is ne f he majr hubs f he burgening indusr. In Malasia fr insance Islamic baning peraes in w flds and under w differen acs vis. he Islamic Financial Services Ac 203 and he Financial Services Ac 204. As such here are he full-fledged Islamic bans and cnveninal bans Islamic windw bh f which have grwn remendusl ver he pas ears (Mhar Abdullah & Al-Habshi 2006). In a repr b he Ban Negara Malasia (Cenral Ban f Malasia) Islamic baning secr has increased in al asses RM 434.6 millin 20. This amuned 22.4% f he al baning asses in he cunr as a he end f 20 (Prer 202). Arguabl he gradual develpmen winessed in he Islamic baning indusr is refleced in is abili wihsand financial crisis. Accrding erbel Buraui & amma (20) he effec f he 2007/2008 glbal financial crisis n he Islamic bans is relaivel mild cmpared he cnveninal bans. This aruses ineres n wheher hese bans are mre efficien cmpared heir cnveninal cunerpars. In his regard numerus sudies have cmpared bh pes f bans in erms f sme efficienc benchmars. Fr insance sudies lie Bader Mhamad Ariff & Hassan (2008) and Rafiuddin & Alam (202) fund ha he Islamic bans are mre prfi efficien while he cnveninal bans are mre cs efficien. This ma n be unepeced given ha eiher ban s perainal philsph differs. Hwever an apparen lacuna is ned in lac f efficienc sudies based n inra-baning ssem in which case a full-fledged Islamic ban s efficienc is e be cmpared is perfrmance during perain as an Islamic windw. This presen sud herefre aims fill his gap in he cne f he Malasian baning indusr. The remaining f his paper is divided as fllws. Immediael fllwing his brief inrducin is he lieraure review. This cvers efficienc issues relaing Islamic bans and he inpu and upu variables used in he efficienc analsis f he sud. Thereafer he research mehdlg is discussed fllwed b he resuls f he analsis. The paper ends wih a summar f majr findings and he cnclusin. Accrding Rafiuddin & Alam (202) while he Islamic bans perae n a nn-ineres basis and have limied pins n wha pe financial insrumens he can rade in; heir cnveninal cunerpars perae an ineres- based ssem and have mre rms maneuvre as per he pes f insrumens he can deal in.
Oladipup Luqman Salami and Abideen Adeemi Adewale 2 2. LITERATURE REVIEW 2.. Malasian Islamic Bans Efficienc Sudies As ned abve a l f sudies have been cnduced n ban efficienc and perfrmance in he develped wrld. Hwever empirical sudies n ban perfrmance and efficienc in develping cunries especiall emerging ecnmies lie Malasia is relaivel scarce. This is even mre s in he cne f Islamic bans. Ms sudies n Islamic baning efficienc cmpared Islamic bans wih cnveninal bans. Samad (2009) was amng he firs researchers ha cnduced research n Malasian Islamic bans efficienc. The sud measured Islamic bans perfrmance in erms f prfiabili in cmparisn heir cnveninal cunerpars using financial rais as analsis l. I cmpared efficienc f full-fledged Malasian Islamic ban agains cnveninal ban cunerpar frm 992 996. Samad (2009) esablished ha cnveninal bans are mre efficien in erms f managerial efficienc han he full fledged Islamic ban. The sud furher eamined prducive efficienc and revealed ha Islamic bans average uilizain rae is lwer cmpared cnveninal bans. While sill using financial rais analsis Samad (2004) als eamined Malasian Islamic bans efficienc perfrmance ver a lnger perid cvering 984 997. The sud cncluded ha Islamic bans are mre efficien cmpared cnveninal bans in erms f liquidi and ris vulnerabili. Hwever he sud menined ha Islamic bans are sill under-perfrming due lac f managemen sills which affeced heir grwh during he perid cvered. Samad (2004) furher adds ha Islamic ban is less prfiable cmpared cnveninal bans which prve ha Islamic ban is less efficien. Hwever he prducivi es b lan recver measure reveals ha Islamic bans are highl efficien and ha bad deb as a percenage f sharehlders fund lans and depsis als indicaes high superiri ver he cnveninal bans. Sufian (2006) invesigaed Malasian Islamic baning efficienc. The scpe f he sud spans hree ears frm 200 2004. The sud used nn-parameric aa Envelpmen Analsis (EA) mehdlg apprach as analsis l cmpare Malasian Islamic bans scale efficienc and echnical efficienc. The sud finds ha Malasian Islamic bans scale efficienc uweighs pure echnical efficienc. The finding suggess ha Malasian Islamic bans are under-perfrming. I was furher esablished ha dmesic Islamic bans are mre echnicall efficien cmpared freign Islamic bans in Malasia. The sud revealed ha inefficienc f freign Islamic bans in Malasia was as a resul f mre fcus n scale raher han pure echnical efficienc during he perid. Sufian (2007a) epanded he scpe f he sud b including sme ris facrs in his analsis. The sud revealed ha Islamic bans scale inefficienc was as resul f pure echnical inefficienc winessed in he Malasian Islamic baning indusr during he scpe f sud. I was furher esablished ha freign Islamic bans have higher echnical efficienc cmpared dmesic Islamic bans in Malasia. Sufian (2007a) furher prved ha Malasian Islamic bans in ear 2002 declined in efficienc. Hwever he bans have slighl recvered in 2003 and 2004 cnsecuivel. Based n he EA mehd adped in he sud i was esablished
22 Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries ha Malasian dmesic Islamic bans are mre efficien cmpared freign Islamic bans in Malasia hugh wih sligh difference. The sud prved ha he cause f inefficienc in he Malasian Islamic bans in general was as a resul f wrng scale f perains. In an empirical sud cnduced b Mhar Abdullah & Alhabshi (2008) n Malasian Islamic bans fr he perid f 997 2003 he findings f he sud shw ha he efficienc f Islamic ban indusr in he cunr has increased during he sud perid. Hwever ha f cnveninal bans remained sagnan ver he same ime perid. As such he sud esablished ha cnveninal bans are sill mre efficien cmpared he Islamic bans. Rashwan (200) eamined he efficienc and prfiabili f bh Islamic and cnveninal bans. The sud fcused n he pre and ps 2008 financial urmil b assessing if here are an majr differences in he perfrmance f he w ssems. The sud adped MANOVA mehdlg analse he financial secndar daa fr he sample bans in he regin. The sud fund here are saisicall significan differences beween he perfrmances f he w baning ssems in 2007 and 2009 while n saisicall significan differences were bained in 2008. The sud revealed ha Islamic bans uperfrm cnveninal bans in 2007 and cnveninal bans perfrm beer han Islamic bans in 2009. Abdul-Majid Saal & Baisi (20) eamined he efficienc f Malasian cmmercial bans during he perid f 996 2002 and fcuses n eamining he impac f Islamic baning n is perfrmance. The sud revealed ha Islamic baning is lesser in he inpu efficienc vis-à-vis cs efficienc. Hwever he full-fledged Islamic bans have higher prducivi efficienc bu his is n he same wih cnveninal bans wih Islamic windw. Apar frm he sudies reviewed abve nhing has been published ha eamined he efficienc f Islamic bans assess heir efficienc beween when he were Islamic baning windws and when he ransfrmed in full-fledged Islamic bans ha are nw full subsidiar f heir paren baning grup in Malasia. In ligh f his nwledge gap his sud sees prvide an empirical evidence fill his apparen research gap vis-à-vis efficienc in he Malasian Islamic baning indusr. 2.2. Appraches Measure Ban Efficienc Generall esablish he apprach assess he efficienc f bans previus sudies viewed bans frm w main perspecives. The appraches are he inermediain and he prducin apprach (Ahar 200; Mhamad Hassan & Bader 2008; Sufian 2007b; Sufian & Harn 2009). The prducin apprach n he ne hand eplains baning aciviies as prducin f services. This apprach defines bans as manufacurer f lan brrwers and depsi perars depsirs using capial and labur. This apprach adped radiinal prducin facrs land labur and capial as inpus used generae desired upus (Bader e al. 2008). Hwever he prducin apprach is said be predminanl suiable fr bans ha invlves in ransacin f channelling he bul depsis and mne bained frm her financial rganizains in
Oladipup Luqman Salami and Abideen Adeemi Adewale lans and invesmens (Faver & Papi 995). Mrever ineres epenses is n inclusive in he summain f al css under he prducin apprach hus nl peraing css are cnsidered and upu is deermined b he number f accuns serviced raher han mnear values (Hassan Mhamad & Bader 2009). The inermediain apprach defines bans be seen as a mediar f mnear ransacins. As was recmmended b (Seale & Lindle 977) his apprach presens a ban as an inermediar ha aes depsis frm cusmers using labur and capial. These depsis are cnsidered as inpus he bans and are len u her cusmers ha wan brrw mne in frm f lans and advances which are cnsidered as upu he bans. Hence his apprach assumes bans be a mediar beween depsirs and lan aers (Hassan e al. 2009). Inermediain apprach is arguabl he ms glball acceped apprach used measure ban efficienc (Kwan 2003). Berger & Humphre (997) pined ha his is because i includes ineres epenses (ineres paid depsirs). The ineres epenses fen amuned he half f he al css f he baning peraing epenses (Hassan e al. 2009). Thugh sme sudies menined ha prducin apprach is mre suiable measuring ban s branches efficienc reasn been ha a branch level cusmer dcumens are managed fr he bans as a whle (Kwan 2003). The inermediain apprach is adped b his sud based n he fllwing grunds: Firs his sud is assessing he whle bans efficienc and n branches. Secndl he inermediain apprach is widel adped (Kwan 2003). Finall he Islamic finance srucure principle is based n prfi sharing and asse-based financing where he paries invlved in he ransacin bear he lsses r prfis based n agreed rai. These principles shw imprance f inermediar aciviies. Als her sudies such as Hassan & Hussein (2003) Hasan (2005) and Sufian (2006) jus menin bu a few have als used his apprach measure Islamic baning efficienc. 3.. aa 3. METHOOLOGY This sud assesses ban efficienc f dmesic Islamic bans in Malasia wih fcus n five dmesic Islamic bans u f eigh as lised b he Ban Negara Malasia (Ban Negara 202). The are: Affin Islamic Ban RHB Islamic ban Public Islamic Ban Hng Leng Islamic Ban and Ma Ban Islamic. These five bans sared as Islamic windw and has since ransfrmed in full-fledged Islamic bans as subsidiar f heir paren cnveninal bans. As such daa were clleced frm hese cmpanies annual reprs cvering he perid frm 2002-20. As Islamic windw he bans repr heir Islamic baning perains under he ne he accun. Hwever as a subsidiar hese bans perae as full fledge Islamic bans and have heir separae annual repr differen frm heir paren cmpanies. Nearl all he bans have sared perae as full Islamic ban b 2008 (Ma Ban and Public Ban). Sme sared as earl as 2005 RHB Ban Affin Ban and Hng Leng Ban sared in 2006. In spie f enrmus lieraures n ban efficienc here is n frma r agreed principles amng schlars n wha can be used as inpus and upus variables in assessing efficienc
24 f bans. One sud s inpu variables migh be used b her as upu variables and vice versa (Mhar e al. 2008). I is generall accepable ha he selecins f variables in ban efficienc research drasicall affec he ucme f he sud (Sufian & Nr 2009). This issue inensified due he fac ha chsing variables are usuall made difficul b he scarci f daa n relevan variables. Aside ha measuring css as in baning in paricular is difficul. This is because ms f he financial aciviies are muuall prduced and prices are usuall allcaed grup f financial services (Sufian & Nr 2009). 3.2. Inpu and Oupu Variables T mae chice f inpus and upus variables his sud adped he inpus and upus variables as used b (Sufian & Nr 2009). This sud clleced daa n w inpu variables and hree upu variables. The upu variables are: al lans dened b (Y) which cnsis f lans cusmers and her bans; incme dened b (Y2) which cnsis f incme derived frm invesmen f depsis and her prceeds frm her Islamic baning aciviies; and he las is he invesmens dened b (Y3) which cnsis f invesmen securiies held fr rading invesmen securiies available fr sale and invesmen securiies held maure. The inpu variables n he her hand are; al depsis dened b (X) which cnsis f depsi frm individual cusmers rganizains and her bans; and capial dened b (X2). 3.3. aa Envelpmen Analsis Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries aa Envelpmen Analsis EA is used as he l f analsis. This sud adped Fare (Färe Grsspf & Rs 998) apprach EA measure he efficienc f he bans cmparing heir perfrmance when he were peraing as Islamic windw and heir perfrmance as fullfledged Islamic bans. The Fare e al. (998) apprach EA empled upu-riened Malmquis Inde (MI). The MI is buil using he EA and his research used EA sfware prgram develped b Celli (996) called EAP versin 2.. The MI was chsen because f is desirable feaures ha seem be suiable fr his research. This mehd des n require he nrmal nrms such as prfi pimizain r cs reducin. This appears be suiable fr his research because measuring cs minimizain ma prve difficul measure efficienc. This is s given ha he acual css aribuable he bans when he are Islamic windw are difficul esablish. Fr eample i wuld be difficul measure her adminisraive epenses such as renal epenses elecrici bill waer rae and s n ha is aribuable Islamic windw. ue i feaures and meris a l f lieraures have used he Malmquis prducivi indees in EA. A few f hse sudies are Fare Grsspf Nrris & Zhang (994) which used his mdel analse he prducivi cmparisn beween cunries while Tauer & Lrdipanidze (999) and K & Ma (996) used his apprach eamine ecnmic secrs such as agriculural secr. (Alam & Sicles 997) used his apprach eamine prducivi efficienc f airlines. Als (Calabrese Campisi & Mancus 2002) used his apprach eamine efficienc f elecmmunicains indusr while (Mlima & Hjalmarssn 2002) adped his apprach measure prducin efficienc in baning and (Aviran 200) used his apprach eamine efficienc in he universiies.
25 The EA apprach used in his research epresses he upu-based MI prducivi beween ime perids () and ( ) which can be mahemaical epressed in w equains as epress b Fare e al (989 cied in Wahab and Rahman 202 ). () (2) (3) (4) Frm equain () abve dene he disance beween he perid ( ) inspecin he perid echnlg where and represen inpu and upu in ha rder. Equain () can be re-wrien fllwing (Färe e al. 998) as fllws: In equain (2) he firs par f he rai befre muliplicain measures he changes in relain efficienc (ha is he level f prducin changes ear n ear) beween ear s and. The her par f he righ hand side f he equain sand fr arihmeic mean f he w rais. I measures he echnlgical changes (ha is changes in he frnier funcin iself) beween he perids under eaminain and. Tha is: Equain (3) eamines he level a which he prducin prcedure changes inpus in upus ( mee up he frnier) and equain (4) eamines he develpmen in echnlg. Imprvemen in he prducivi ield in MI is represened b values ha is mre han and if perfrmance is declining ver he ear i is represened b values less han (Färe e al. 994). This eplanain is used eplain he values f each f he elemen f he general Tal Facr Prducivi (TFP) direcr. If he value f MI is greaer han hen i is cnsidered be efficien indicaing imprvemen in he prducivi. Als if he value f he echnlgical change elemen is mre han i is referred as efficien in he echnlg advancemen. Frm equain (4) disance is measured fr each peraive in each pair f durain b means f mahemaical prgramming mehd. EA is based n he assumpin ha = where are rganizains (in his case bans) ha prduce m =. M dene upus m whereas N= where N dene inpus n a ever ime perid = T. 2 = M as fllws: 2 = M represen inpu -Fledged Subsidiaries Change in Efficienc = Technlgical Change = ducin prcedure changes inpus in upus ( Oladipup Luqman Salami and Abideen Adeemi Adewale
26 Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries In EA he indicain f echnlg hrugh Cnsan Reurns Scale (CRS) a ever ime perid frm he daa can be epressed as: G = ( ): z m =... = m = z n n =... N z 0 =... K m M (5) In equain (5) Z sand fr he weigh n each eac crss-secinal eaminain. Using (Afria 972) her allw he Variable Reurns Scales (VRS) CRS have be relaed b adding he fllwing cnsrain: = z = (VRS) (6) This research adped Fare e al (994) which spelled u he breadwn f he MI. The sud caegrized MI in he efficienc change cmpnen and scale efficienc change cmpnen. The efficienc change cmpnen measures CRS echnlg in relain pure efficienc cmpnen. The scale efficienc change cmpnen n he her hand measures he variain in he difference cnnecing he VRS and CRS echnlg. Pure efficienc elemen calculaes he een which he bans can change inpus in upus and he scale efficienc n he her side assesses he degree a which he bans can bain benefi frm reurns scale b increasing r decreasing in size wards achieving he bes pssible scale. Therefre under EA apprach cmpse he MI prducivi f an rganizain ' beween and hese disance funcins have be measured: ( ) ( ) ( ) ( ) These fur disance funcins can be equaed wih Farrell s upu-based ha measure echnical efficienc. In EA Farrell s upu-based measure he echnical efficienc fr ever rganizain ' =. where can be saed as: ' ' [ ( )] = maλ ' ' (7)
Oladipup Luqman Salami and Abideen Adeemi Adewale 27 Subjec ' λ m z m m =... M = z ' n =... N n = z = (VRS) = z 0 =... K. (8) The calculain f is he same as Equain (8) anwhere is replaced b. T calculae he es MI he i als cnsruc requires he cnsrucin f w mied-disance funcins ha is calculaed b evaluaing he bservain in ne ime perid wih he bes pracice frnier f anher ime perid. The ppsie f he mied-disance funcin fr bservain ' can be bained frm: Subjec ' ' [ ( )] = maλ ' ' (9) ' λ z = z = m = z m m =... M ' n =... N n = (VRS) z 0 =... K. (0) ae change in scale efficienc under he VRS echnlg he c Therefre in rder calculae change in scale efficienc under he VRS echnlg he cnrar upu disance funcins mus als be measured merging equain (6) in he resricins in equains (8) and (0). Technical change can be measured in relain he CRS echnlg. Scale efficienc change in ever ime perid is measured in percenage f he disance funcin fulfilling CRS in relain he disance funcin in VRS. Pure efficienc change n he her side measures he percenage f he wn-perid disance funcin in each perid in VRS. These w disance funcins will brea dwn equain (2) becme:
28 I is wrh ne ha if echnlg in acuali shws CRS he scale change facr will equal and i will be equivalen equain (2). 4. RESULTS The able belw is he descripive saisical analsis f inpus and upus f Malasian Islamic bans under sud fr he perid f 2002-20. The able shws he mean median maimum minimum and he al f bh he inpus and upus. Amng he bans Ma Ban Islamic has he highes amun f al depsi capial al lan incme and invesmen. This is generall epeced given ha Ma Ban is Malasia s bigges ban and amng he earl sarers f Islamic baning. Affin Islamic Ban has he lwes number f al depsi capial al lan and incme ecep fr invesmen; where Public Ban Islamic recrds he lwes figures. Mrever Table belw indicaes ha ver he las nine-ear in he sample perid (2003-20) he al maimum lan bained frm he Islamic baning perains frm all he five bans increased b 445%. Tha is frm RM8.25 billin in 2003 RM45.84 billin in 20. This indicaes ha he respnsiveness f Malasians wards he Islamic baning and finance during hese ears has increased remendusl. uring he ears (2002-20) he al maimum incme generaed frm he Islamic baning perains frm all he five bans increased frm RM264 millin in 2003 RM.39 billin in 20. The al incme increased b 426% and his indicaes ha Islamic baning perains generae subsanial amun f incme he bans. This shuld have significan implicain fr imprved perfrmance f heir paren bans. The maimum al invesmen in he Islamic baning perains has increased b 3% frm RM2.99 billin in 2003 RM6.36 billin in 20. Cmpared wih he percenage increase Windws and Full-Fledged Subsidiaries 2 = Technical Change = Pure efficienc change 2 c c c c = Scale Efficienc change = 2 M 2 c c c c () Where Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries
Oladipup Luqman Salami and Abideen Adeemi Adewale 29 Table : escripive Analsis f Yearl Inpu and Oupu Variables f he Seleced Bans frm 2003-20 OUT PUT TL Mean Min Ma S Inc Inv TL Inc Inv TL Inc Inv TL Inc Inv 2002 375252 32588 926947 37700 52232 023882 8253532 264966 2992252 3903353 555 05430 2003 4686589 26698 70774 32520 44720 57464 703438 225449 320790 280452 7449 97245 2004 5570346 66593 254636 70625 42896 27503 45857 34384 3229 5380992 4436 99042 2005 633589 24529 284649 495292 3420 27479 6052758 55490 340307 5827624 2040 2963 2006 700423 28087 0439 227293 92436 5736 6677354 684234 2643072 6093874 249425 987464 2007 7653635 280968 429494 73455 0538 392670 7945079 595607 3735886 6599276 26 334394 2008 8970282 6067 58024 2449939 89863 782750 20929988 347870 275435 7573774 06474 808922 2009 0439797 362848 234426 2880708 86594 359522 25302763 828478 402498 9463328 336963 2437 200 323667 4632 2898366 3555596 90625 334083 334034 96767 447808 2384960 393607 43976 20 750364 525983 34872 4374205 37790 480275 4584429 393248 636500 6943869 55880 782529 INPUT Mean Min Ma S Cap Cap Cap Cap T T T T 2002 630006 405962 282932 207865 266584 798767 50659 34083 2003 5780973 674976 2877670 250788 243605 50379 3876546 52322 2004 6375255 69523 2287365 2902 5965833 299767 550940 445872 2005 766470 88988 249384 3552 8476399 80657 6286882 650694 2006 795684 967993 323870 96696 56880 87666 4476868 79290 2007 9723926 070356 5325725 235607 8530067 963746 5538900 770856 2008 903629 88804 553324 26267 2430550 684840 7728099 52327 2009 5080474 29582 5865789 39807 30442998 255846 042457 84986 200 7745289 469946 6878560 433504 39549999 329736 346847 39349 20 25653007 747794 9676383 48288 59664840 39642 2325445 376389 Nes: Oupu: TL Tal Lan Inc Incme; Inv- Invesmen Inpu: T Tal epsi; Cap - Capial Surce: Auhrs Cmpuain
30 Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries in al incme i appears ha amun invesed quadrupled in reurns. This shws incme generaed frm invesmen is quie high. This is perhaps evidence ha Islamic baning and finance is reall grwing in Malasia. In addiin he maimum amun f depsis recrded b he bans frm 2003 20 increased b 390%. Tha is frm RM2.6 billin in 2003 RM59.66 billin in 20. This is evidence ha he awareness f Islamic baning perains is imprving as increase in he al depsis prves mre peple are parnizing he Islamic baning perains. Finall he al maimum capial used as sar-up capial has increased b 395% frm RM798 millin in 2003 RM3.96 billin in 20. This shws ha bans are epanding heir Islamic baning perains such as changing heir perain frm windw full fledged Islamic ban as subsidiar he main ban. 4.. Efficienc f he bans 2003 20 (VRS) Frm Table 2 belw nl Hng Leng Islamic Ban is cnsisenl efficien under Variable Reurn Scale (VRS). Bh Public Islamic Ban and RHB Islamic Ban are fund be efficien under VRS frm 2003-2007 and 2008-20. The bans were nl inefficien in he ear 2008 under VRS. Whereas Affin Islamic Ban is fund be efficien under VRS frm 2003-2007 and ehibis inefficienc fr 2008-2009 he ban is laer fund be efficien fr 200-20. Ma Ban Islamic is fund be efficien under VRS frm ear 2003-2005 and he ban resul eeps flucuaing. Fr insance beween 2006 and 20 he bans scillae beween efficienc and inefficienc ever her ear. The resul shws ha majri f he bans have effecivel ep pace wih precise sufficien prducin penials and increased heir space he indusrial prducin frnier under he VRS echnlg. The nl ecepin in his regard is Ma Ban Islamic ha ehibis inefficienc in 2006. NO BANK Surce: Auhrs Cmpuain Table 2: Efficienc f he bans 2003 20 (VRS) 2003 2004 2005 AFFIN BANK.000.000.000.000.000 0.733 0.966.000.000 2 HONG LEONG BANK.000.000.000.000.000.000.000.000.000 3 MAY BANK.000.000.000 0.957.000 0.955.000 0.995.000 4 PUBLIC BANK.000.000.000.000.000 0.763.000.000.000 5 RHB BANK.000.000.000.000.000 0.257.000.000.000 2006 2007 2008 2009 200 20 MEAN.000.000.000 0.99.000 0.742 0.993 0.999.000 4.2. Efficienc f he bans 2003 20 (CRS) Als under he CRS saring frm 2004-2007 majri f he bans are efficien. This indicaes ha hse bans are able prduce 00% f heir penial upu during hse ears prir saring perains as full-fledged Islamic bans. Again he nl ecepin is Ma Ban Islamic ha prduced 55.2% f is penial upu in 2006. Cnrar he resul under VRS in Table 3 ms f he bans are fund be inefficien under CRS in Table 4 in 2003. The prprin f heir penial upu level were Affin Ban 93.5% Public Ban 37% and RHB Ban 48%.
Oladipup Luqman Salami and Abideen Adeemi Adewale 3 NO BANK Surce: Auhrs Cmpuain Table 3: Efficienc f he bans 2003 20 (CRS) 2003 2004 2005 AFFIN BANK 0.935.000.000.000.000 0.376 0.893.000.000 2 HONG LEONG BANK.000.000.000.000.000.000.000.000 0.988 3 MAYBANK.000.000.000 0.552.000 0.836.000 0.793.000 4 PUBLIC BANK 0.370.000.000.000.000 0.356 0.844.000.000 5 RHB BANK 0.480.000.000.000.000 0.22.000.000.000 2006 2007 2008 2009 200 20 MEAN 0.757.000.000 0.90.000 0.538 0.947 0.959 0.998 As shwn b he mean scres in Table 3 n average he bans efficienc increased frm 2003 2004. The bans were able mainain his ill 2005 eperienced a decline in 2006 bu increased efficienc again in 2007. If cmpared wih 2008 20 he increase in he verall arihmeic mean befre 2008 is beer. As ehibied in he arihmeic mean in Table 3 he average efficienc fr he bans remained a uni (highl efficien) bu declined slighl in 2006. I increased again in 2007 and ep flucuaing afer wards. Frm Tables 2 and 3 he bans efficienc changed frm 2003 20 under he CRS and VRS. This shws ha he average efficienc perfrmance f he bans is relaivel high frm laer perspecive. Ms f he bans are highl efficien frm 2003 2007 which is cnsidered as pre-full fledge Islamic baning perains (Islamic windw) han during he full fledge Islamic baning perains fr bh VRS and CRS. 4.3. Prducin Perfrmance fr Each Ban The resul shwn in Tables 4 6 gives he perfrmance f he bans frm 2003 20 fr changes in TFP and is divisins Technical Change (TC) and Efficienc Change (EC). The values f he MI TFP prducivi inde and is divisin are inerpreed as an value ha is less han indicaes a decrease r deerirain. On he cnrar values ha are mre han impl develpmen in he relevan area. The figures shwn in he able 4 belw indicae average increase r decrease per ear fr he acual perid f ime cvered. The calculains nl fcus n perfrmance in relain he Table 4: Bans Relaive Malmquis TFP Change Beween Time Perid and 2003 20 NO BANKS 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-200 200-20 MEAN AFFIN BANK.486.392.390 2.582 2.776.02 0.893.696.665 2 HONG LEONG BANK.72.264 3.09 2.798 2.75 4.09 3.786.330 2.598 3 MAY BANK 2.269.4.290 0.848 0.725.336 3.846 0.666.55 4 PUBLIC BANK 0.543 0.883.93.639 2.038 0.362.426 0.938.28 5 RHB BANK 0.947.678 0.634.202 2.864 0.42 0.887 0.586.5 MEAN.39.272.59.84 2.224.46 2.68.043.6 Surce: Auhrs Cmpuain
32 Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries ms ecellen pracice wih apprpriae perfrmance r raher in relain he ms ecellen pracice in he sample. Table 4 ehibis he change in he Malmquis-based TFP inde. As shwn in Table 5 Ma Ban Hng Leng Ban and Affin Bans perfrmance shw a psiive prducivi changes frm 2003 20. On he cnrar Public Ban and RHB Bans perfrmance shws a highl deeriraing prducivi change frm 2003 2006 and 2008 20. Mrever Hng Leng Ban has he highes mean f increase in prducivi change a an annual average rae f 59% fllwed b Affin Ban wih annual average mean f 66% and fllw ne is Ma Ban wih annual average mean f 55%. Assessing he whle bans in general all he bans have increased heir prducivi change n average b 6% per annum fr he durain 2003 20. The her divisin f he Malmquis prducivi inde Technical Change and Efficienc Change resuls are repred in Tables 5 and 6 belw. Table 5: Ban Relaive Technical Change Beween ime Perid and 2003-20 NO BANKS 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-200 200-20 MEAN AFFIN BANK 0.843 0.830.023 0.670 0.994 0.669.0.094 0.892 2 HONG LEONG BANK 0.606.865 0.597 0.99.959 0.23 0.865.080.002 3 MAY BANK 0.789 0.994.230 0.793.602 0.729 0.644.5.037 4 PUBLIC BANK 0.747.09.373 0.782 0.65.683.272.723.68 5 RHB BANK 0.534 0.875.957.226.004 0.83.268 2.69.23 MEAN 0.694.083.5 0.859.242 0.606 0.98.462.066 Surce: Auhrs Cmpuain Table 5 shws he inde figures f echnical imprvemen r decline as calculaed b he average changes in he ms ecellen pracice frnier frm. As revealed b he resuls all he bans eperienced bh echnical imprvemen and deerirain frm 2003 20. Based n he ear under review Hng Leng Ban has he highes change in echnical deerirain f (-87.7%) in he ear 2008 2009. RHB Ban has he highes echnical develpmen (26.8%) in he ear 200 20. Similarl Table 5 als presens ha all he five bans eperienced echnical imprvemen in 200-20. The number f bans ha are echnicall imprved reduced hree in 2009-200 while he number drasicall declined ne in 2009-2008. The bans ha shw echnical imprvemen in 2007-2008 are als hree. Hwever in 2006-2007 nl ne ban u f he five bans eperienced echnical advancemen fur bans in 2005-2006 w bans in 2004-2005 and n ban eperienced echnical develpmen in 2003-2004. Overall average ear 2008-2009 is fund have he highes echnical deerirain (-39%). Affin Ban has he highes echnical deerirain (-0.8%) while RHB Ban has he highes echnical imprvemen wih 23.% fllwed b Public Ban wih 6.8% Ma Ban is fund have 3.7% and Hng Leng Ban wih 0.2%.
Oladipup Luqman Salami and Abideen Adeemi Adewale 33 Table 6: Changes in Bans Relaive Efficienc beween Time Perid and 2003 20 NO BANKS 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-200 200-20 MEAN AFFIN BANK.069.000.000.000 0.376 2.376.20.000.8 2 HONG LEONG BANK.000.000.000.000.000.000.000 0.988 0.999 3 MAY BANK.000.000 0.552.83 0.836.96 0.793.262.057 4 PUBLIC BANK 2.704.000.000.000 0.356 2.369.85.000.327 5 RHB BANK 2.083.000.000.000 0.22 8.75.000.000.923 MEAN.432.000 0.888.26 0.424 2.229.00.045.284 Surce: Auhrs Cmpuain 5. FININGS Resul frm Table 6 presens he relaive change efficienc fr each ban. The findings shw he significan difference amng he bans and perids. Ms f he bans are fund be efficien frm 2004 2007. A plausible reasn culd be he glbal financial crisis ha became pervasive since arund 2008. As ned b erbel Buraui & amma (20) he Islamic baning and finance indusr was als mildl affeced b he crisis as refleced in heir relaivel dismal perfrmance during he perid. As such fr he res f he ears he bans eperienced flucuain in heir efficienc; ha is he efficienc increased mre han in sme perid and less han in sme her perid r he efficienc remained cnsan ha is n changes in efficienc. In addiin he findings revealed ha majri f he bans have cnsan efficienc frm 2004-2007. uring his perid ms f he bans peraed heir Islamic baning perains as a windw wihin heir paren bans. The reasn fr his culd be sme een ha he perains f he cnveninal baning peraed side-b-side wih he Islamic baning perains hereb suppring he efficienc f he Islamic windw. There is als a pssibili ha he aciviies f he cnveninal baning perains significanl increase r sabilize he Islamic baning perains during hse perids. I culd be ha cnveninal baning perains help Islamic baning perain in areas such as lans and advances capial mare invesmen and mne mare invesmen since bh baning perains will a he end f he ear repr a single financial repr. Mrever Samad (2009) ned ha he Islamic baning windws demnsrae efficienc if he culd leverage n he perainal efficienc f he eising cnveninal baning arrangemens wihin heir bans. I is liel ha he mive fr running bh baning perains (cnveninal and Islamic) is generae mre reurns he bans. As such i can be argued ha efficienc is mainained during hse perids because he bans appear be able reduce heir persnnel and capial epenses. Fr insance same saffs ha are used perae he cnveninal baning perains als perae he Islamic baning perains. This perhaps save he bans sme mne unlie when he perae as a full fledge Islamic ban in which case as a subsidiar heir perains is all separaed frm he cnveninal baning ssem. This aligns wih he pinin f Berger
34 Malasian Islamic Bans Efficienc: An Inra-Ban Cmparaive Analsis f Islamic Windws and Full-Fledged Subsidiaries and Humphre (2007) and Hassan e al (2009) ha aribue he Islamic baning windws efficienc shared cs f inpu lie persnnel and adminisraive epenses. Mre s efficienc can als be mainained due capial ependiure - he capial ependiure was brne b he whle ban n he Islamic windw. Fr eample: building ren elecrici bill and her mainenance epenses. All he epenses will n affec he perain f he Islamic windw hus he will be efficien since he inpu will be lw in erms f epenses and upu is maimized. Based n he ears under eaminain his sud findings shw ha RHB Ban has he highes level f efficienc change wih 92.3% Public Ban aes secnd psiin b recrding 32.7% he ne is Affin Ban wih.8% fllwed b Ma Ban wih 5.7% and Hng Leng Ban is fund be he nl ban ha eperienced efficienc deerirain wih (-0.%). This is nwihsanding he fac ha Public Ban has he highes level f efficienc deerirain during he ear 2007 2008 wih (-64.4%). Generall ranging frm 2003 20 wih ecepin f 2007 2008 wih he leas recrd f psiive efficienc change fllw b 2005 2006 all her ears presen a psiive efficienc change. Mrever he pure efficienc seems n be significan means f grwh efficienc change if cmpared wih he scale efficienc change divisin fr each ban under review. Ecep fr Hng Leng Ban he her bans under eaminain eperienced changes in bh pure efficienc and scale efficienc during he ear 2007 2008 and 2008 2009. Such findings align wih hse f Mhar Abdullah & Alhabshi (2008) and Sufian (2006). The saed ha a liel reasn culd be because his perid mars he ear when ms f he bans changed heir perains frm Islamic windw full fledge Islamic baning. All he bans recrded psiive changes in heir earl grwh fr pure efficiencies frm 2003 2007 ecep Ma Ban ha eperienced decline in efficienc wih abu (-4.3%) in 2005 and eperienced efficienc imprvemen f abu 4.4% in 2006. RHB Ban has he highes deerirain f pure efficienc f (-74.3%) in 2007 2008. Public Ban has he highes deerirain f (-53.3%) in 2007 2008 in erms f scale efficienc. Ineresingl RHB Ban has he highes imprvemen f pure efficienc f 288% in ear 2008 2009. Public Ban n he her hand als has he highes imprvemen f scale efficienc f 08% in ear 2003 2004. Fr he enire ears under eaminain ear 2008 2009 is recgnized as he ear f pure efficienc advancemen. While he res f he perid is recgnized as ears f scale efficienc imprvemen. 6. CONCLUSION This sud cmpared he efficienc f five Islamic bans in Malasia during heir perain as Islamic windw and laer ransfrmain a full-fledged Islamic ban. The aim is fill an apparen dearh f empirical sudies in his cne especiall in he case f Malasia as a hub f he burgening Islamic baning and finance indusr. aa envelpmen analsis is used assess bh he echnical and scale efficienc f he bans under sample. Sequel he resuls bained he fllwing cnclusin is made in his sud. Frm he analsis in his sud he efficienc scres fr he ban as an Islamic windw are relaivel beer cmpared subsequen efficienc scres bained fr same Islamic bans
Oladipup Luqman Salami and Abideen Adeemi Adewale 35 as a full-fledged subsidiar. As such a cnclusin ma be ha Islamic windws are mre efficien han full fledge Islamic ban. Mrever ear f cmmencemen f perain seems eer s much influence n efficienc a leas in he cne f he Islamic bans under sample. Based n his sud s analsis bans ha have lnger ears f perain f Islamic baning and finance as windws (Ma Ban and Public Ban) are mre efficien cmpared wih bans ha sared full fledge Islamic baning earl (RHB Ban and Affin Ban). Therefre his sud can cnclude ha ears f eisence deermine efficienc. Based n he summar f he MI prducivi means f he bans; i is indicaed ha he Tal Prducivi Change has been imprved ver he ears cvered. Hwever i will be impran pin u here ha he imprvemen in he Tal Prducivi Change is as a resul f increase in bh echnical change and efficienc change and wih he laer enjing prminence. I is hus cncluded ha Islamic bans shuld leverage mre n echnlgical nwledge be able pimize he echnical prcedure s as enable hem increase heir cmpeiive edge in he fuure. REFERENCES Abdul-Majid M. Saal. S. & Baisi G. (20). The impac f Islamic baning n he cs efficienc and prducivi change f Malasian cmmercial bans. Applied Ecnmics 43(6) 2033-2054. Afria S. N. (972). Efficienc esimain f prducin funcins. Inernainal Ecnmic Review 3(3) 568-598. Ahar M. H. (200). Technical Efficienc and Prducivi Grwh f Saudi Bans A aa Envelpmen Analsis Apprach. Glbal Business Review (2) 9-33. Alam I. M. S. & Sicles R. C. (997). Lng run prperies f echnical efficienc in he US airline indusr. Wissenschafszenrum Berlin Für Szialfrschung FS IV 97 25. Aviran N. K. (200). Invesigaing echnical and scale efficiencies f Ausralian universiies hrugh daa envelpmen analsis. Sci-Ecnmic Planning Sciences 35() 57-80. Bader M. K. I. Mhamad S. Ariff M. & Hassan T. (2008). Cs revenue and prfi efficienc f Islamic versus cnveninal bans: inernainal evidence using daa envelpmen analsis. Islamic Ecnmic Sudies 5(2) 23-76. Ban Negara Malasia. (202). Lis f Licensed Baning Insiuins in Malasia. Rerieved Januar 203 frm hp://www.bnm.gv.m/inde.php?ch=li&ca=islamic&pe=ib &fund=0&cu=0
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