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RESEARCH POSTER PRESENTATION DESIGN © 2012 www.PosterPresentations.com INTRODUCTION RESEARCH QUESTIONS & RESEARCH OBJECTIVES METHODOLOGY FINDINGS CONCLUSION REFERENCES CONTACT Quantitative Method Nature of the study Utilize output-input data from 13 Islamic banks and 10 conventional banks in Malaysia (due to the availability of data) Data collection technique Annual Report of the banks from 2007 to 2012 Source of data Data Envelopment Analysis (DEA) Utilize the assumptions of variable returns to scale (VRS) Parametric test (t-test) and Non-parametric test (Mann-Whitney U-test) Data Analysis Technique Fixed Assets Total Deposits Inputs Other earning assets Total loans Outputs Fatin Syazwani Safiyuddin & Norazlina Abd Wahab Islamic Business School, Universiti Utara Malaysia Efficiency of Islamic and Conventional Banks during Financial Crisis: Empirical Evidence from Malaysia RESEARCH QUESTIONS To what extent the efficiency of Islamic banks during financial crisis? To what extent the efficiency of conventional banks during financial crisis? To what extent Islamic and conventional banks are technical efficient or scale efficient? RESEARCH OBJECTIVES To analyze the efficiency of Islamic banks during financial crisis. To analyze the efficiency of conventional banks during financial crisis. To examine source of overall technical efficiency of Islamic and conventional banks during financial crisis. FINDINGS YEAR OTE PTE SE 2007 0.666 0.948 0.678 2008 0.614 0.805 0.741 2009 0.678 0.955 0.708 2010 0.854 0.948 0.893 2011 0.832 0.930 0.891 2012 0.731 0.883 0.788 Mean for Islamic banks (2007 to 2012) YEAR OTE PTE SE 2007 0.562 0.713 0.811 2008 0.937 0.976 0.961 2009 0.707 0.886 0.805 2010 0.827 0.952 0.866 2011 0.772 0.893 0.860 2012 0.779 0.938 0.831 Mean for conventional banks (2007 to 2012) Return to scale for Islamic banks YEAR CRS % IRS % DRS % TOTAL 2007 4 50 2 25 2 25 8 2008 5 41.6 7 3 25 4 33.33 12 2009 5 45.4 5 5 45.4 5 1 9.09 11 2010 7 58.3 3 3 25 2 16.67 12 2011 5 38.4 6 3 23.0 8 5 38.46 13 2012 4 44.4 4 4 44.4 4 1 11.11 9 OVERALL 30 46.1 5 20 30.7 7 15 23.08 65 Return to scale for conventional banks YEAR CRS % IRS % DRS % TOTAL 2007 3 42.8 6 4 57.1 4 0 0 7 2008 4 57.1 4 3 42.8 6 0 0 7 2009 4 50 1 12.5 3 37.5 8 2010 4 50 3 37.5 1 12.5 8 2011 3 33.3 3 3 33.3 3 3 33.33 9 2012 4 44.4 4 4 44.4 4 1 11.11 9 OVERALL 22 45.8 3 18 37.5 8 16.67 48 Based on the empirical finding of this study, Islamic banks score around 0.614 to 0.854 of OTE during the study period. In terms of PTE, Islamic banks score around 0.805 to 0.955 while for the SE, Islamic banks score around 0.678 to 0.893 from 2007 to 2012. In overall, we can see that pure technical efficiency contributed more to the overall technical efficiency. In other words, the scale inefficiency leads to the overall technical inefficiency. Hence, we can suggest that Malaysian Islamic banks have been operating in the wrong scale operations. The resulting analysis shows that conventional banks score around 0.562 to 0.937 of OTE during the study period. In terms of PTE, conventional banks score around 0.713 to 0.976 while for the SE, Islamic banks score around 0.805 to 0.961 within the period of study. In overall, we can see that scale efficiency, dominated more to the overall technical efficiency. This study could be an initial effort to analyze the efficiency of Islamic and conventional banks during financial crisis. In addition, more significantly, is the use of DEA to examine the efficiency of the banking industry in Malaysia in which the Islamic banks are comparatively analyzed with the conventional banks. The result of this study have significant contributions to several interested parties, such as in informing the policy makers such as Bank Negara Malaysia (BNM) in Malaysia as well as related ministries on the relative efficiency of Islamic and conventional banks during the financial crisis and whether the source of growth in overall technical efficiency is due to the pure technical efficiency or scale efficiency. Ahmad Mokhtar, H.S., Abdullah, N., & Alhabshi, S.M. (2008). Efficiency and Competition of Islamic Banking in Malaysia. Humanomics, 24 (1), 24-48. Ayub, M. (2007). Understanding Islamic Finance. John Wiley & Sons. Banker, R.D., Charnes, A. & Cooper, W.W. (1984). Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis. Management Science, 30 (9), 1078-1092. Beck Thorstern, Demirgüç-kunt Asli, Merrouche Ouarda. (2010). Islamic vs. Conventional Banking Business Model, Efficiency and Stability. Policy Research Working Paper, (October), 1–44. Berger, A.N., & Humphrey, D.B. (1997). Efficiency of Financial Institutions: International Survey and Direction for Future Research. European Journal of Operational Research, 98, 175-212. Charnes, A., Cooper, W.W., & Rhodes, E. (1978). Measuring the Efficiency of Decision Making Units. European Journal of Operational Research, (6), 429-444. Chazi, A., & Syed, L. a. M. (2010). Risk exposure during the global financial crisis: the case of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 3(4), 321–333. doi:10.1108/17538391011093261 Coakes, S. J. (2012). SPSS Version 20.0 for Windows: Analysis without Anguish. John Wiley & Sons. Farrell, M.J. (1957). The Measurement of Profit Efficiency. Journal of the Royal Statistical Society, 3, 253-290. Rosman, R., Wahab, N. A., & Zainol, Z. (2013). Efficiency of Islamic banks during the financial crisis: An Analysis of Middle Eastern and Asian Countries. Pacific- Basin Finance Journal, 76-90. Sufian, F. (2004). The Efficiency Effects of Bank Mergers and Acquisitions in a Developing Economy: Evidence From Malaysia. International Journal of Applied Econometrics and Quantitative Studies, 53-74. Sufian, F. (2007). The Efficiency of Islamic Banking Industry in Malaysia: Foreign vs Domestic Banks. Humanomics, 23 (3), 174. Sufian, F., Noor, M.A.M., & Majid, M. Z.A. (2008). The Efficiency of Islamic Banks: Empirical Evidence from the MENA and Asian Countries Islamic Banking Sectors, The Middle East Business and Economic Review, 20, 1-19. Wasiuzzaman, S., & Gunasegavan, U. N. (2013). Comparative study of the performance of Islamic and conventional banks: The case of Malaysia. Humanomics, 29(1), 43– 60. doi:10.1108/08288661311299312Website Bank Negara Malaysia retrieved at www.bnm.gov.my . Yudistira, D. (2004). Efficiency in Islamic Banking: An Empirical Analysis of 18 Banks, Islamic Economic Studies, 12 (1), 1-19. EFFICIEN CY Maximiza tion of outputs Minimiza tion of costs Maximiza tion of profits Efficiency can be defined as the good usage of resources to maximize the production of the goods and services of the firms where it concerns with the relationship between the input resources such as labour costs, capital and equipment and the output produced using the inputs (Farrell, 1957). DEA Result Movement 2007 to 2012 for Islamic Banks The efficiency estimates each Islamic and conventional bank from 2007 to 2012 is computed by utilizing the non-parametric Data Envelopment Analysis (DEA). Through this method, we can distinguish three different types of efficiency measures which are overall technical efficiency (OTE), pure technical efficiency (PTE), and scale efficiency (SE) as DEA Result Movement 2007 to 2012 for Conventional Banks The study shows the Constant Return to Scale (CRS), Increasing Return to Scale (IRS) or Decreasing Return to Scale (DRS) of the Islamic and conventional banks. CRS means the increasing in the input results in a proportionate increase in outputs. In addition, IRS means an increase in inputs result in a higher increase in outputs, whereas DRS indicates the increase in inputs result in a lesser output increase. Table below summarizes the details of each year score for Islamic and conventional banks either CRS, IRS or DRS. From the results derived from the DEA method, the issue of interest now is whether the difference in the Islamic and conventional banks’ efficiency during a financial crisis is statistically significant. Hence, Mann-Whitney [Wilcoxon Rank Sum] has been utilized which is suggested by Coakes and Steed (2003), when they stated that it is a relevant test for two independent samples coming from populations having the same distribution. The relevant reason is that the data violate the stringent assumptions of the independent group’s t-test. Thus, the non- parametric Mann-Whitney [Wilcoxon] test performed along with a series of other parametric (t-test) to obtain the results. The findings reported in the table below. The result seems to suggest that Islamic banks are relatively more technically efficient compared to conventional bank counterparts. Fatin Syazwani Safiyuddin [email protected] Summary Islamic banks Conventional banks Overall Technical Efficiency 0.614 to 0.854 0.562 to 0.937 Pure Technical Efficiency 0.805 to 0.955 0.713 to 0.976 Scale Efficiency 0.678 to 0.893 0.805 to 0.961 Dr. Norazlina Abdul Wahab [email protected] Comparison Bank t-test Mann-WhitneyU-test Mean t value sig Mean Rank z value sig Technical Efficiency Islamic 0.44 6.87 .000 72.04 -5.68 .000 Conventional 0.13 36.64 Pure Technical Efficiency Islamic 0.62 9.67 .000 76.59 -7.41 .000 Conventional 0.18 30.4 Scale Efficiency Islamic 0.64 -2.754 .000 52.41 -1.734 .000 Conventional 0.77 63.22 0 0.2 0.4 0.6 0.8 1 1.2 2007 2008 2009 2010 2011 2012 O TE PTE SE

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Page 1: Template Poster Presentation IBMC 2014 fatin.pptx

RESEARCH POSTER PRESENTATION DESIGN © 2012

www.PosterPresentations.com

INTRODUCTION

RESEARCH QUESTIONS & RESEARCH OBJECTIVES

METHODOLOGY

FINDINGS CONCLUSION

REFERENCES

CONTACT

• Quantitative MethodNature of the study

• Utilize output-input data from 13 Islamic banks and 10 conventional banks in Malaysia (due to the availability of data)

Data collection technique

• Annual Report of the banks from 2007 to 2012Source of data

• Data Envelopment Analysis (DEA)• Utilize the assumptions of variable returns to scale (VRS)• Parametric test (t-test) and Non-parametric test (Mann-Whitney

U-test)

Data Analysis Technique

• Fixed Assets• Total DepositsInputs

• Other earning assets• Total loansOutputs

Fatin Syazwani Safiyuddin & Norazlina Abd WahabIslamic Business School, Universiti Utara Malaysia

Efficiency of Islamic and Conventional Banks during Financial Crisis: Empirical Evidence from Malaysia

RESEARCH QUESTIONS• To what extent the efficiency of Islamic banks

during financial crisis?• To what extent the efficiency of conventional

banks during financial crisis?• To what extent Islamic and conventional banks are

technical efficient or scale efficient?

RESEARCH OBJECTIVES• To analyze the efficiency of Islamic banks during

financial crisis.• To analyze the efficiency of conventional banks

during financial crisis.• To examine source of overall technical efficiency

of Islamic and conventional banks during financial crisis.

FINDINGS

YEAR OTE PTE SE

2007 0.666 0.948 0.678

2008 0.614 0.805 0.741

2009 0.678 0.955 0.708

2010 0.854 0.948 0.893

2011 0.832 0.930 0.891

2012 0.731 0.883 0.788

Mean for Islamic banks (2007 to 2012)

YEAR OTE PTE SE

2007 0.562 0.713 0.811

2008 0.937 0.976 0.961

2009 0.707 0.886 0.805

2010 0.827 0.952 0.866

2011 0.772 0.893 0.860

2012 0.779 0.938 0.831

Mean for conventional banks (2007 to 2012)

Return to scale for Islamic banks

YEAR CRS % IRS % DRS % TOTAL2007 4 50 2 25 2 25 82008 5 41.67 3 25 4 33.33 122009 5 45.45 5 45.45 1 9.09 112010 7 58.33 3 25 2 16.67 122011 5 38.46 3 23.08 5 38.46 132012 4 44.44 4 44.44 1 11.11 9

OVERALL 30 46.15 20 30.77 15 23.08 65

Return to scale for conventional banks

YEAR CRS % IRS % DRS % TOTAL2007 3 42.86 4 57.14 0 0 72008 4 57.14 3 42.86 0 0 72009 4 50 1 12.5 3 37.5 82010 4 50 3 37.5 1 12.5 82011 3 33.33 3 33.33 3 33.33 92012 4 44.44 4 44.44 1 11.11 9

OVERALL 22 45.83 18 37.5 8 16.67 48

Comparison Bank t-test Mann-Whitney U-test

Mean t value

sig Mean Rank

z value

sig

Technical Efficiency Islamic 0.44 6.87 .000 72.04 - 5.68 .000 Conventional 0.13 36.64

Pure Technical Efficiency

Islamic 0.62 9.67 .000 76.59 - 7.41 .000 Conventional 0.18 30.4

Scale Efficiency Islamic 0.64 -2.754 .000 52.41 -1.734 .000 Conventional 0.77 63.22

Based on the empirical finding of this study, Islamic banks score around 0.614 to 0.854 of OTE during the study period. In terms of PTE, Islamic banks score around 0.805 to 0.955 while for the SE, Islamic banks score around 0.678 to 0.893 from 2007 to 2012. In overall, we can see that pure technical efficiency contributed more to the overall technical efficiency. In other words, the scale inefficiency leads to the overall technical inefficiency. Hence, we can suggest that Malaysian Islamic banks have been operating in the wrong scale operations. The resulting analysis shows that conventional banks score around 0.562 to 0.937 of OTE during the study period. In terms of PTE, conventional banks score around 0.713 to 0.976 while for the SE, Islamic banks score around 0.805 to 0.961 within the period of study. In overall, we can see that scale efficiency, dominated more to the overall technical efficiency.

This study could be an initial effort to analyze the efficiency of Islamic and conventional banks during financial crisis. In addition, more significantly, is the use of DEA to examine the efficiency of the banking industry in Malaysia in which the Islamic banks are comparatively analyzed with the conventional banks. The result of this study have significant contributions to several interested parties, such as in informing the policy makers such as Bank Negara Malaysia (BNM) in Malaysia as well as related ministries on the relative efficiency of Islamic and conventional banks during the financial crisis and whether the source of growth in overall technical efficiency is due to the pure technical efficiency or scale efficiency.

Ahmad Mokhtar, H.S., Abdullah, N., & Alhabshi, S.M. (2008). Efficiency and Competition of Islamic Banking in Malaysia. Humanomics, 24 (1), 24-48.

Ayub, M. (2007). Understanding Islamic Finance. John Wiley & Sons.

Banker, R.D., Charnes, A. & Cooper, W.W. (1984). Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis. Management Science, 30 (9), 1078-1092.

Beck Thorstern, Demirgüç-kunt Asli, Merrouche Ouarda. (2010). Islamic vs. Conventional Banking Business Model, Efficiency and Stability. Policy Research Working Paper, (October), 1–44.

Berger, A.N., & Humphrey, D.B. (1997). Efficiency of Financial Institutions: International Survey and Direction for Future Research. European Journal of Operational Research, 98, 175-212.

Charnes, A., Cooper, W.W., & Rhodes, E. (1978). Measuring the Efficiency of Decision Making Units. European Journal of Operational Research, (6), 429-444.

Chazi, A., & Syed, L. a. M. (2010). Risk exposure during the global financial crisis: the case of Islamic banks. International Journal of Islamic and Middle Eastern Finance and Management, 3(4), 321–333. doi:10.1108/17538391011093261

Coakes, S. J. (2012). SPSS Version 20.0 for Windows: Analysis without Anguish. John Wiley & Sons.

Farrell, M.J. (1957). The Measurement of Profit Efficiency. Journal of the Royal Statistical Society, 3, 253-290.

Rosman, R., Wahab, N. A., & Zainol, Z. (2013). Efficiency of Islamic banks during the financial crisis: An Analysis of Middle Eastern and Asian Countries. Pacific-Basin Finance Journal, 76-90.

Sufian, F. (2004). The Efficiency Effects of Bank Mergers and Acquisitions in a Developing Economy: Evidence From Malaysia. International Journal of Applied Econometrics and Quantitative Studies, 53-74.

Sufian, F. (2007). The Efficiency of Islamic Banking Industry in Malaysia: Foreign vs Domestic Banks. Humanomics, 23 (3), 174.

Sufian, F., Noor, M.A.M., & Majid, M. Z.A. (2008). The Efficiency of Islamic Banks: Empirical Evidence from the MENA and Asian Countries Islamic Banking Sectors, The Middle East Business and Economic Review, 20, 1-19.

Wasiuzzaman, S., & Gunasegavan, U. N. (2013). Comparative study of the performance of Islamic and conventional banks: The case of Malaysia. Humanomics, 29(1), 43–60. doi:10.1108/08288661311299312Website Bank Negara Malaysia retrieved at www.bnm.gov.my.

Yudistira, D. (2004). Efficiency in Islamic Banking: An Empirical Analysis of 18 Banks, Islamic Economic Studies, 12 (1), 1-19.

EFFICIENCY

Maximization of outputs

Minimization of costs

Maximization of profits

Efficiency can be defined as the good usage of resources to maximize the production of the goods and services of the firms where it concerns with the relationship between the input resources such as labour costs, capital and equipment and the output produced using the inputs (Farrell, 1957).

0

0.2

0.4

0.6

0.8

1

1.2

2007 2008 2009 2010 2011 2012

OTE

PTE

SE

DEA Result Movement 2007 to 2012 for Islamic Banks

The efficiency estimates each Islamic and conventional bank from 2007 to 2012 is computed by utilizing the non-parametric Data Envelopment Analysis (DEA).

Through this method, we can distinguish three different types of efficiency measures which are overall technical efficiency (OTE), pure technical efficiency (PTE), and scale efficiency (SE) as shown below.

DEA Result Movement 2007 to 2012 for Conventional Banks

The study shows the Constant Return to Scale (CRS), Increasing Return to Scale (IRS) or Decreasing Return to Scale (DRS) of the Islamic and conventional banks. CRS means the increasing in the input results in a proportionate increase in outputs. In addition, IRS means an increase in inputs result in a higher increase in outputs, whereas DRS indicates the increase in inputs result in a lesser output increase. Table below summarizes the details of each year score for Islamic and conventional banks either CRS, IRS or DRS.

From the results derived from the DEA method, the issue of interest now is whether the difference in the Islamic and conventional banks’ efficiency during a financial crisis is statistically significant. Hence, Mann-Whitney [Wilcoxon Rank Sum] has been utilized which is suggested by Coakes and Steed (2003), when they stated that it is a relevant test for two independent samples coming from populations having the same distribution. The relevant reason is that the data violate the stringent assumptions of the independent group’s t-test. Thus, the non-parametric Mann-Whitney [Wilcoxon] test performed along with a series of other parametric (t-test) to obtain the results.

The findings reported in the table below. The result seems to suggest that Islamic banks are relatively more technically efficient compared to conventional bank counterparts.

Fatin Syazwani [email protected]

Summary

Islamic banks Conventional banks

Overall Technical Efficiency

0.614 to 0.854 0.562 to 0.937

Pure Technical Efficiency

0.805 to 0.955 0.713 to 0.976

Scale Efficiency 0.678 to 0.893 0.805 to 0.961

Dr. Norazlina Abdul [email protected]