Chapter

Efficiency in Arabian Banking

Idries Al-Jarrah and Philip Molyneux

in Islamic Perspectives on Wealth Creation

Published by Edinburgh University Press

Published in print May 2005 | ISBN: 9780748621002
Published online March 2012 | e-ISBN: 9780748653096 | DOI: http://dx.doi.org/10.3366/edinburgh/9780748621002.003.0007
Efficiency in Arabian Banking

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This chapter explores the efficiency levels of the Jordanian, Egyptian, Saudi Arabian and Bahraini banking systems, or the Arabian banking systems, emphasising the role of economic and financial reforms that have taken place in these countries in recent years. It employs the stochastic frontier and Fourier-flexible form to estimate cost and profit efficiency levels. The cost efficiency averaged around 95.0 per cent over the 1992–2000 period. Estimates of standard and alternative profit functions reveal technical efficiency on average at around 66.0 per cent and 58.0 per cent respectively. Islamic banks are found to be the most cost and profit efficient, while investment banks are considered the least so. Larger banks appear to be relatively more cost and profit efficient. Geographically, Bahraini banks are the most cost and profit efficient, while Jordanian banks are the least. There is little evidence to suggest that economic and financial reforms have had a noticeable impact on improving banking-sector efficiency.

Keywords: banking systems; economic reforms; financial reforms; cost-efficiency levels; profit-efficiency levels

Chapter.  8765 words. 

Subjects: Society and Culture

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