ISLAMIC BANKS EFFICIENCY IN SUDAN AND MALAYSIA: A COMPARISON STUDY

ISLAMIC BANKS EFFICIENCY IN SUDAN AND MALAYSIA: A COMPARISON STUDY Abdelwahab Ahmed Ibrahim 1 Yousif Abdelbagi Abdalla 2 Abuzar Mohamed Ahmed Eljelly 3 Abstract This paper aims to investigate the Islamic banks efficiency in Sudan and Malaysia. Two analytical techniques were used: the data envelopment analysis (DEA), and the multivariate regression. The results indicated that there is an increase in demand for Islamic banking services in both Sudan and Malaysia. An increasing trend in efficiency for Sudanese and Malaysian Islamic banks is observed. The regression results indicated that the bank market structure affects the banks negatively through the bank deposits and positively through the bank size. In terms of risk structure, it is obvious that the higher lending intensity results into higher risk which leads to inefficiency. The economic conditions have a significant effect on banks efficiency especially for the inflation rate. The growth in country's GDP contributes positively in banks performance to be efficient. In the other side the population density has a little negative effect on efficiency. Keywords: Efficiency; Islamic Banks; Sudan & Malaysia 2017 JHLCB Introduction The importance of efficiency measurement in the banking sector is related to the substantial impact that it has on the micro and macro levels of the economy. In order to properly allocate the economic resources, the financial system, including banks, needs to be efficient. Efficiency in banking sector then supports the macroeconomic policies, generating durable development, economic growth and welfare. Since the first Islamic institution experiment in Egypt Meit Gammar in 1962 Islamic banking has grown rapidly all over the world. Islamic banking operations started as mere deposit taking and lending, then it has developed to involve all aspects of banking, money and capital markets operations. There are about 500 Islamic banks around the world; these banks are distributed throughout 60 countries (El- Beltagy, 2012), two of them are Sudan and Malaysia. The first Sudanese Islamic bank, Faisal 1 Department of Accounting and Financial Management, School of Management Studies, University of Khartoum, University St, Khartoum\Sudan, Tel: +249-122292981 E-mail: abduaccountingthree@hotmail.com. 2 Department of Accounting and Financial Management, School of Management Studies, University of Khartoum, University St, Khartoum\Sudan, Tel: +249-123061950 E-mail: yousif3a@hotmail.com. 3 Department of Accounting and Financial Management, School of Management Studies, University of Khartoum, University St, Khartoum\Sudan. 191

Islamic Bank Sudan (FIB), was established in 1978, while the first Islamic bank in Malaysia was Bank Islam Malaysia Berhad, which was established in 1983. Efficiency is concerned with the optimal distribution of the scarce resources. There are different types of efficiency: Productive efficiency, allocative efficiency, X inefficiency, efficiency of scale, dynamic efficiency, social efficiency, technical efficiency, and distributive efficiency. Islamic Banks ability to perform efficiently depends in part on the contracting environment in which they operate. Such an environment includes accounting practices, government regulations, and the market conditions under which banks operate. Differences in these features across political jurisdictions can lead to differences in the efficiency of banks across countries. This research paper investigates and compares the efficiency of Islamic banks in Sudan and Malaysia, and examines how factors such as bank characteristics and environmental variables can affect Islamic banks efficiency in these countries. Literature Review Eight studies regarding banking efficiency were reviewed in this study. Five of them used non-parametric approaches, while the other three studies used parametric approaches. Sufian and Abdul Majid (2008) investigated the performance of Malaysian local and foreign Islamic banks during the period 2001-2005. They evaluated efficiency using non-parametric Data Envelopment Analysis (DEA). They linked variation in efficiency to a set of variables, i.e. bank size, ownership, capital, non-performing loans and management quality. Their findings suggest that more efficient banks are larger, have greater loans intensity and have less nonperforming loans. Similarly, Sufian (2010) employed a non-parametric approach to provide empirical evidence on the impact of foreign banks entry on the efficiency of the Islamic banking sector in Malaysia. The empirical findings indicate that the De Novo foreign Islamic banks have been relatively more efficient and productive compared to their domestic and foreign Islamic bank counterparts. Grigorian and Manole (2002) estimated indicators of bank efficiency by applying the DEA to bank-level data from a wide range of countries. They further explained the differences in efficiency between the countries by a variety of macroeconomic variables. In addition, they stressed the importance of some bank-specific variables using a Tobit model. Chen (2009) studied the efficiency of banks in Sub-Saharan African middle-income countries. He found that among the factors that could affect the efficiency levels are: macroeconomic stability, depth of financial development, the degree of market competition, strong legal rights and contract laws, and better governance including political stability and government effectiveness. Ansari and ur-rehman (2011) analyzed the financial performance of Islamic and Conventional banking industry in Pakistan during the period from 2005 until 2009. They concluded that Islamic banking system is superior to the conventional system. Dietsch and Vivas (2000) investigated the influence the environmental conditions have on the cost efficiency of French and Spanish banking industries. They conducted a cross-country comparison of efficiency using a parametric approach. Their results demonstrate that environmental variables contribute significantly to the difference in efficiency scores between 192

the two countries. Onour (2011) used the DEA to measure the efficiency of Gulf countries banks, and he linked the efficiency to the bank profitability, risk and size. He found a negative correlation between the bank efficiency and each of risk and size. Finally, Bintawim (2011) conducted a performance comparison analysis of Saudi Arabian banks, and examined the impact of bank characteristics on financial performance. The results showed that bank size has a negative impact on financial performance. The current study differs from the previous studies and provides a value add results as it does not only measures efficiency in a sole banking sector but it measures it in two Islamic banking sectors and compare between them, this comparison helps determining the weaknesses and strengths of each Islamic banking sector. Methodology Two analytical techniques are used to investigate Islamic banks efficiency in Sudan and Malaysia, these are: Data Envelopment Analysis (DEA) and Multivariate Regression. Data Envelopment Analysis (DEA) This research paper employs the non-parametric frontier DEA approach to estimate the inputoriented technical efficiency of Islamic banks in Sudan and Malaysia. This approach measures the efficiency of a decision-making unit (DMU) relative to other DMUs with the simple restriction that all DMUs lay on or below the efficiency frontier. The DEA is carried out by assuming either constant returns to scale (CRS) or variable returns to scale (VRS). These two assumptions allow the overall technical efficiency (TE) to be decomposed into two components: pure technical efficiency (PTE) and scale efficiency (SE). The PTE relates to the capability of managers to utilize the firm s resources; whereas the SE refers to exploiting scale economies by operating at a point where the production frontier exhibits constant returns to scale. For the purpose of this study the intermediation approach is adopted in the definition of inputs and outputs. Sudanese and Malaysian Islamic banks are regarded as intermediaries between savers and borrowers producing two outputs which are Total Loans (y1) and Investments (y2) by employing three inputs namely Total Deposits (x1), Total Assets (x2), and Labor (x3). Multivariate Regression Analysis Efficiency scores obtained from the DEA is used as the dependent variables in the model. The efficiency scores will be regressed on the bank characteristics and macroeconomic variables; which contain: bank size, market share, lending intensity, population density, GDP growth rate and inflation rate. Using the efficiency scores as the dependent variable and the bank characteristics and macroeconomic variables as independent variables the regression model will be as follow: θt = β0+β1 LNTAt+β2 LNDPt+β3 LO\TAt+β4 RGDP+β5 PODE+β6 INFL Where, θt is the average efficiency score at period t obtained from the DEA model; LNTA is the natural logarithm of total assets (used as a proxy of size). LNDP is the log of total deposits (used as a proxy of market share). LO\TA is the ratio of total loans to total assets (used as a proxy of lending intensity). RGDP is the growth rate of GDP (Gross Domestic Product). PODE is the population density, and INFL is the inflation rate. 193

Results and Discussion This section discusses the DEA results of the Sudanese and Malaysian Islamic banks. It also explains the efficiency determinants of the Sudanese and Malaysian Islamic Banks through the results of the multivariate model. Efficiency of the Sudanese Islamic Banks Table (1) presents statistics of efficiency scores for the Sudanese Islamic banks during the period from 2011 until 2014. The table shows the mean scores of the Technical Efficiency and its components: Pure Technical Efficiency and Scale Efficiency. Technical Efficiency refers to the firm's ability to maximize the outputs using the minimum set of inputs. Meanwhile, Scale Efficiency measures the consistency of the firm's productivity with its scale, and determines the productivity waste. From the table it is clear that Sudanese Islamic banks did not achieve 100% score of both Technical and Scale efficiency during the period of the study, while a full score of Pure Technical Efficiency is achieved in the year 2014. Technical Efficiency scores were constant during 2011 and 2012, but a decrease occurred in 2013, and a critical increase from 89% to 99% appeared in 2014. The same attitude applies for Pure Technical and Scale efficiency scores, as they were stable in the first two years, then they declined in the third year, and finally increased in the fourth year. Table (1): Statistics of Efficiency Scores for the Sudanese Islamic Banks Technical Efficiency Pure Technical Efficiency Scale Efficiency Mean Max Min Mean Max Min Mean Max Min 2011 93% 100% 66% 96% 100% 82% 97% 100% 66% 2012 93% 100% 66% 96% 100% 79% 97% 100% 75% 2013 89% 100% 57% 93% 100% 59% 95% 100% 78% 2014 99% 100% 91% 100% 100% 97% 99% 100% 94% Table (2) contains the ranking of Sudanese Islamic banks according to the Technical Efficiency scores during the study period. Five banks were fully technical efficient, these represent 42% of the Sudanese Islamic banks under the study. The rest of banks did not achieve the full Technical Efficiency score. Table (2): Sudanese Islamic Banks Technical Efficiency Ranking Technical Efficiency Ranking Blue Nile Mashreq Bank 100% 1 Farmer s Commercial Bank 100% 1 Financial Investment Bank 100% 1 Industrial Development Bank 100% 1 United Capital Bank 100% 1 Al Nile Bank For Commerce and Development 97% 2 Bank of Khartoum 97% 2 Faisal Islamic Bank 94% 3 Al -Shamal Islamic Bank 88% 4 Baraka Bank (Sudan ) 86% 5 Saudi Sudanese Bank 83% 6 Aljazeera Sudanese Jordanian Bank 75% 7 194

Seven banks out of twelve were efficient and achieved 100% Pure Technical efficiency while the rest five banks did not, these results are obvious in Table (3) which presents the ranking of Sudanese Islamic banks depending on Pure Technical Efficiency scores. Table (3): Sudanese Islamic Banks Pure Technical Efficiency Ranking Pure Technical Efficiency Ranking Al Nile Bank For Commerce and Development 100% 1 Bank of Khartoum 100% 1 Blue Nile Mashreq Bank 100% 1 Farmer s Commercial Bank 100% 1 Financial Investment Bank 100% 1 Industrial Development Bank 100% 1 United Capital Bank 100% 1 Faisal Islamic Bank 97% 2 Aljazeera Sudanese Jordanian Bank 95% 3 Al -Shamal Islamic Bank 91% 4 Baraka Bank (Sudan ) 86% 5 Saudi Sudanese Bank 84% 6 Table (4) expresses Sudanese Islamic Banks Scale Efficiency Ranking. Fifty percent of the Sudanese Islamic banks could be described as scale efficient, while the other 50% weren't scale efficient through the four years of the study. Table (4): Sudanese Islamic Banks Scale Efficiency Ranking Scale Efficiency Ranking Blue Nile Mashreq Bank 100% 1 Farmer s Commercial Bank 100% 1 Financial Investment Bank 100% 1 Industrial Development Bank 100% 1 United Capital Bank 100% 1 Baraka Bank (Sudan) 100% 1 Saudi Sudanese Bank 99% 2 Al Nile Bank For Commerce and Development 97% 3 Faisal Islamic Bank 97% 3 Bank of Khartoum 97% 3 Al -Shamal Islamic Bank 96% 4 Aljazeera Sudanese Jordanian Bank 80% 5 Efficiency of the Malaysian Islamic Banks Table (5) presents statistics of efficiency scores for the Malaysian Islamic banks during the period from 2011 until 2014. From the table it is clear that Malaysian Islamic banks did not achieve 100% score of Technical, Pure Technical, and Scale efficiency during the period of the study. Technical Efficiency scores were increasing during the period of efficiency. 195

Table (5): Statistics of Efficiency Scores for the Malaysian Islamic Banks Technical Efficiency Pure Technical Efficiency Scale Efficiency Mean Max Min Mean Max Min Mean Max Min 2011 90% 100% 64% 95% 100% 72% 95% 100% 64% 2012 93% 100% 70% 96% 100% 73% 96% 100% 82% 2013 95% 100% 70% 97% 100% 72% 98% 100% 91% 2014 97% 100% 79% 98% 100% 80% 98% 100% 89% Only four banks out of fifteen were fully technical efficient among the Malaysian Islamic banks, this could be excluded from Table (6) which represents the Malaysian Islamic banks Technical Efficiency ranking. Table (6): Malaysian Islamic Banks Technical Efficiency Ranking Technical Efficiency Ranking Alliance Islamic Bank Berhad 100% 1 AmBank Islamic Berhad 100% 1 Hong Leong Islamic Bank Berhad 100% 1 Public Islamic Bank Berhad 100% 1 CIMB Islamic Bank Berhad 99% 2 Bank Islam Malaysia Berhad 99% 2 HSBC Amanah Malaysia Berhad 98% 3 RHB Islamic Bank Berhad 95% 4 OCBC Al-Amin Bank Berhad 93% 5 Maybank Islamic Berhad 93% 5 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad 93% 5 Kuwait Finance House (Malaysia) Berhad 89% 6 Bank Muamalat Malaysia Berhad 88% 7 Asian Finance Bank Berhad 85% 8 Affin Islamic Bank Berhad 71% 9 When Malaysian Islamic banks were ranked according to the Pure Technical efficiency scores, 53% of them were efficient while the rest of 47% were inefficient, as shown in Table (7). 196

Table (7): Malaysian Islamic Banks Pure Technical Efficiency Ranking Pure Technical Efficiency Ranking Alliance Islamic Bank Berhad 100% 1 AmBank Islamic Berhad 100% 1 Asian Finance Bank Berhad 100% 1 Bank Islam Malaysia Berhad 100% 1 CIMB Islamic Bank Berhad 100% 1 Hong Leong Islamic Bank Berhad 100% 1 Maybank Islamic Berhad 100% 1 Public Islamic Bank Berhad 100% 1 HSBC Amanah Malaysia Berhad 99% 2 OCBC Al-Amin Bank Berhad 98% 3 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad 97% 4 Kuwait Finance House (Malaysia) Berhad 95% 5 RHB Islamic Bank Berhad 95% 5 Bank Muamalat Malaysia Berhad 90% 6 Affin Islamic Bank Berhad 74% 7 Table (8) expresses Malaysian Islamic banks scale efficiency ranking. Only five of the Malaysian Islamic banks could be described as scale efficient, while the other ten weren't scale efficient through the four years of the study. Table (8): Malaysian Islamic Banks Scale Efficiency Ranking Scale Efficiency Ranking Alliance Islamic Bank Berhad 100% 1 AmBank Islamic Berhad 100% 1 Hong Leong Islamic Bank Berhad 100% 1 Public Islamic Bank Berhad 100% 1 RHB Islamic Bank Berhad 100% 1 CIMB Islamic Bank Berhad 99% 2 Bank Islam Malaysia Berhad 99% 2 HSBC Amanah Malaysia Berhad 99% 2 Bank Muamalat Malaysia Berhad 98% 3 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad 96% 4 Affin Islamic Bank Berhad 95% 5 OCBC Al-Amin Bank Berhad 95% 5 Kuwait Finance House (Malaysia) Berhad 94% 6 Maybank Islamic Berhad 93% 7 Asian Finance Bank Berhad 85% 8 197

Efficiency of the Sudanese and Malaysian Islamic Banks Here the study looks for the overall efficiency trend when merging Sudanese and Malaysian Islamic banks in one group. The efficiency trend for the two countries banks is increasing through the years from 2011 until 2014. Table (9): Statistics of Efficiency Scores for the Sudanese & Malaysian Islamic Banks Technical Efficiency Pure Technical Efficiency Scale Efficiency Mean Max Min Mean Max Min Mean Max Min 2011 88% 100% 63% 91% 100% 66% 96% 100% 63% 2012 88% 100% 59% 92% 100% 71% 96% 100% 69% 2013 90% 100% 56% 93% 100% 56% 96% 100% 72% 2014 90% 100% 62% 93% 100% 63% 97% 100% 81% Table (10) presents the ranking of Sudanese and Malaysian Islamic banks using the Technical Efficiency scores. From the table the results indicate that six banks (only 38%) of the Sudanese and Malaysian Islamic banks were efficient. Among the efficient banks two banks were Sudanese while the other four banks were Malaysian, in other word 33% of the efficient banks were Sudanese while 67% were Malaysian. This indicates that Malaysian Islamic banks are more efficient than Sudanese Islamic banks. Table (10): Sudanese and Malaysian Islamic Banks Technical Efficiency Ranking Nationality Technical Efficiency Ranking Alliance Islamic Bank Berhad Malaysian 100% 1 AmBank Islamic Berhad Malaysian 100% 1 Hong Leong Islamic Bank Berhad Malaysian 100% 1 Public Islamic Bank Berhad Malaysian 100% 1 Blue Nile Mashreq Bank Sudanese 100% 1 Financial Investment Bank Sudanese 100% 1 Industrial Development Bank Sudanese 99% 2 CIMB Islamic Bank Berhad Malaysian 99% 2 HSBC Amanah Malaysia Berhad Malaysian 98% 3 Al Nile Bank For Commerce and Development Sudanese 97% 4 Bank Islam Malaysia Berhad Malaysian 97% 4 RHB Islamic Bank Berhad Malaysian 95% 5 OCBC Al-Amin Bank Berhad Malaysian 93% 6 Maybank Islamic Berhad Malaysian 93% 6 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad Malaysian 93% 6 United Capital Bank Sudanese 91% 7 198

Kuwait Finance House (Malaysia) Berhad Malaysian 89% 8 Farmer s Commercial Bank Sudanese 85% 9 Bank Muamalat Malaysia Berhad Malaysian 85% 9 Asian Finance Bank Berhad Malaysian 84% 10 Al -Shamal Islamic Bank Sudanese 81% 11 Bank of Khartoum Sudanese 77% 12 Affin Islamic Bank Berhad Malaysian 71% 13 Faisal Islamic Bank Sudanese 69% 14 Baraka Bank (Sudan ) Sudanese 69% 14 Saudi Sudanese Bank Sudanese 68% 15 Aljazeera Sudanese Jordanian Bank Sudanese 64% 16 Ranking according to the scores of Pure Technical efficiency increases the number of efficient banks to eleven banks instead of six banks when ranking using the scores of Technical efficiency. Four Sudanese Islamic banks were among the eleven efficient banks, and the remaining seven efficient banks were Malaysian. The percentage was 36% for Sudanese banks and 64% for Malaysian banks. The results also indicate that Malaysian Islamic banks are more efficient than Sudanese Islamic banks. All these results are abstracted from Table (11). Table (11): Sudanese and Malaysian Islamic Banks Pure Technical Efficiency Ranking Nationality Pure Technical Efficiency Ranking Alliance Islamic Bank Berhad Malaysian 100% 1 AmBank Islamic Berhad Malaysian 100% 1 Bank Islam Malaysia Berhad Malaysian 100% 1 CIMB Islamic Bank Berhad Malaysian 100% 1 Hong Leong Islamic Bank Berhad Malaysian 100% 1 Maybank Islamic Berhad Malaysian 100% 1 Public Islamic Bank Berhad Malaysian 100% 1 Al Nile Bank For Commerce and Development Sudanese 100% 1 Blue Nile Mashreq Bank Sudanese 100% 1 Financial Investment Bank Sudanese 100% 1 Industrial Development Bank Sudanese 100% 1 United Capital Bank Sudanese 99% 2 HSBC Amanah Malaysia Berhad Malaysian 98% 3 OCBC Al-Amin Bank Berhad Malaysian 98% 3 RHB Islamic Bank Berhad Malaysian 95% 4 Farmer s Commercial Bank Sudanese 95% 4 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad Malaysian 94% 5 Kuwait Finance House (Malaysia) Berhad Malaysian 91% 6 Aljazeera Sudanese Jordanian Bank Sudanese 90% 7 199

Asian Finance Bank Berhad Malaysian 88% 8 Bank Muamalat Malaysia Berhad Malaysian 87% 9 Al -Shamal Islamic Bank Sudanese 84% 10 Bank of Khartoum Sudanese 78% 11 Baraka Bank (Sudan ) Sudanese 76% 12 Affin Islamic Bank Berhad Malaysian 72% 13 Saudi Sudanese Bank Sudanese 72% 13 Faisal Islamic Bank Sudanese 71% 14 Table (12) contains the ranking of Sudanese and Malaysian Islamic banks depending on the Scale efficiency scores. Only seven banks were efficient and the other nine banks were not. Only two Sudanese banks were included in the group of efficient banks, while the remaining five banks were Malaysian. This is represented by 29% of efficient banks were Sudanese, and 71% were Malaysian. Again; Malaysian Islamic banks are more efficient than Sudanese Islamic banks. Table (12): Sudanese and Malaysian Islamic Banks Scale Efficiency Ranking Nationality Scale Efficiency Ranking Alliance Islamic Bank Berhad Malaysian 100% 1 AmBank Islamic Berhad Malaysian 100% 1 Hong Leong Islamic Bank Berhad Malaysian 100% 1 Public Islamic Bank Berhad Malaysian 100% 1 Blue Nile Mashreq Bank Sudanese 100% 1 Financial Investment Bank Sudanese 100% 1 RHB Islamic Bank Berhad Malaysian 100% 1 Industrial Development Bank Sudanese 99% 2 HSBC Amanah Malaysia Berhad Malaysian 99% 2 CIMB Islamic Bank Berhad Malaysian 99% 2 Bank of Khartoum Sudanese 99% 2 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad Malaysian 99% 2 Kuwait Finance House (Malaysia) Berhad Malaysian 98% 3 Affin Islamic Bank Berhad Malaysian 98% 3 Bank Muamalat Malaysia Berhad Malaysian 98% 3 Faisal Islamic Bank Sudanese 98% 3 Al Nile Bank For Commerce and Development Sudanese 97% 4 Al -Shamal Islamic Bank Sudanese 97% 4 Bank Islam Malaysia Berhad Malaysian 97% 4 Saudi Sudanese Bank Sudanese 96% 5 Asian Finance Bank Berhad Malaysian 95% 6 OCBC Al-Amin Bank Berhad Malaysian 95% 6 Maybank Islamic Berhad Malaysian 93% 7 United Capital Bank Sudanese 92% 8 Baraka Bank (Sudan ) Sudanese 91% 9 Farmer s Commercial Bank Sudanese 90% 10 Aljazeera Sudanese Jordanian Bank Sudanese 71% 11 200

More efficiency analysis could be made using Table (13) which represents the number of times a bank appeared on the efficiency frontier. This analysis looks at every bank individually. From the table it is clear that some banks were efficient all through the four years, and on the other hand, some banks did not appear on the efficiency frontier even for one year. Six banks were considered to be efficient over the whole period, two of them are Sudanese, and four are Malaysian. The two efficient Sudanese Islamic banks are Blue Nile Mashreq Bank and Financial Investment Bank. The four banks all through period efficient Malaysian Islamic banks are: Alliance Islamic Bank Berhad, AmBank Islamic Berhad, Hong Leong Islamic Bank Berhad, and Public Islamic Bank Berhad. However; the number of efficient Malaysian Islamic banks is greater than their Sudanese counterparts. On the other hand fifteen banks did not appear on the efficiency frontier even for one year, of which eight are Sudanese and seven are Malaysian. Hence, the number of inefficient Sudanese banks is greater than the number of the Malaysian ones. Table (13): Number of Times a Bank Appeared on the Efficiency Frontier Nationality 2011 2012 2013 2014 Count Affin Islamic Bank Berhad Malaysian 65% 70% 70% 79% 0 Al Nile Bank For Commerce and Development Sudanese 96% 94% 98% 100% 1 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad Malaysian 87% 88% 100% 97% 1 Al -Shamal Islamic Bank Sudanese 84% 78% 90% 72% 0 Aljazeera Sudanese Jordanian Bank Sudanese 63% 59% 65% 69% 0 Alliance Islamic Bank Berhad Malaysian 100% 100% 100% 100% 4 AmBank Islamic Berhad Malaysian 100% 100% 100% 100% 4 Asian Finance Bank Berhad Malaysian 63% 82% 91% 99% 0 Bank Islam Malaysia Berhad Malaysian 94% 100% 95% 97% 1 Bank Muamalat Malaysia Berhad Malaysian 70% 83% 88% 99% 0 Bank of Khartoum Sudanese 81% 74% 79% 75% 0 Baraka Bank (Sudan ) Sudanese 73% 68% 69% 66% 0 Blue Nile Mashreq Bank Sudanese 100% 100% 100% 100% 4 CIMB Islamic Bank Berhad Malaysian 97% 100% 100% 100% 3 Faisal Islamic Bank Sudanese 78% 69% 66% 64% 0 Farmer s Commercial Bank Sudanese 85% 78% 93% 85% 0 Financial Investment Bank Sudanese 100% 100% 100% 100% 4 Hong Leong Islamic Bank Berhad Malaysian 100% 100% 100% 100% 4 HSBC Amanah Malaysia Berhad Malaysian 100% 100% 92% 99% 2 Industrial Development Bank Sudanese 98% 100% 100% 100% 3 Kuwait Finance House (Malaysia) Berhad Malaysian 78% 89% 96% 94% 0 Maybank Islamic Berhad Malaysian 98% 94% 91% 89% 0 OCBC Al-Amin Bank Berhad Malaysian 94% 91% 94% 93% 0 Public Islamic Bank Berhad Malaysian 100% 100% 100% 100% 4 RHB Islamic Bank Berhad Malaysian 90% 94% 96% 99% 0 Saudi Sudanese Bank Sudanese 74% 82% 56% 62% 0 United Capital Bank Sudanese 99% 84% 90% 92% 0 Determinants of Banks Efficiency 201

Table (14) presents the regression statistics. The R square value indicates that 75% of the change in the independent variable is due to the change in the dependent variables. The same table also shows the regression coefficients. There is a negative correlation between the technical efficiency and the natural logarithm of deposits. Furthermore, there is a positive correlation between the efficiency scores and the natural logarithm of total assets. The lending intensity (loans over assets) is positively correlated with the banks efficiency. Moreover, the growth rate of GDP has a positive correlation with efficiency. A negative correlation is observed between the population density and efficiency, and the same is for the correlation between the inflation rate and banks efficiency. Multiple R 0.87 R Square 0.75 Adjusted R Square -0.74 Standard Error 0.05 Observations 8 Table (14): Regression Statistics ANOVA df SS MS F Regression 6 0.006 Residual 1 0.002 Total 7 0.009 202 0.00 1 0.00 2 Significance F 0.502 0.792 Coefficient Standard P- Upper t Stat Lower 95% s Error value 95% Intercept -17.83 13.19-1.35 0.41-185.47 149.82 LNDP -4.63 3.74-1.24 0.43-52.09 42.83 LNTA 5.48 4.21 1.30 0.42-47.97 58.93 LO\TA -5.94 3.85-1.54 0.37-54.88 42.99 RGDP 0.24 0.81 0.29 0.82-10.00 10.47 PODE -0.02 0.02-1.06 0.48-0.28 0.24 INFL -1.70 1.46-1.16 0.45-20.28 16.88 The regression results indicate that the bank market structure affects the banks negatively through the bank deposits and positively through the bank size; this can be interpreted as that the larger banks are more efficient even though they have a lower level of deposits. In terms of risk structure, it is obvious that the higher lending intensity results into higher risk which leads to inefficiency. The economic conditions have a significant effect on banks efficiency specially for the inflation rate; these economic factors differ in the direction of their effect on efficiency. The growth in country's GDP contributes positively to banks performance to be efficient. On the other side the population density has a little negative effect on efficiency; this is consistent with the negative effect of deposits on efficiency, as the increase in population increases the deposits amount, but affects banks efficiency negatively.

Conclusion This research paper aimed to investigate the Islamic banks efficiency in two countries, which are Sudan and Malaysia. It also targeted to make comparisons between the banks efficiency scores in the two countries. In particular, the paper tried to find out the different factors affecting the Islamic banks efficiency in Sudan and Malaysia. The paper used two analytical techniques: the data envelopment analysis (DEA), and the multivariate regression. The DEA results indicated that there is an increase in demand for Islamic banking services in both Sudan and Malaysia, but this increase is greater in Sudan. The results also revealed that there is an increasing trend in efficiency for Sudanese and Malaysian Islamic banks. Moreover; only six banks (38%) of the Sudanese and Malaysian Islamic banks were efficient; among these two banks were Sudanese nationality while the other four banks were Malaysian, in other words, 33% of the efficient banks were Sudanese while 67% were Malaysian; this indicates that Malaysian Islamic banks are more efficient than Sudanese Islamic banks. Furthermore; the number of efficient Malaysian Islamic banks is greater than their Sudanese counterparts, and the number of inefficient Sudanese banks is greater than the number of the Malaysian ones. The regression results indicate that the bank market structure affects the banks negatively through the bank deposits and positively through the bank size; this can be interpreted as that the larger banks are more efficient even though they have a lower level of deposits. In terms of risk structure it is obvious that the higher lending intensity results into higher risk which leads to inefficiency. The economic conditions have a significant effect on banks efficiency especially for the inflation rate; these economic factors differ in the direction of their effect on efficiency. The growth in country's GDP contributes positively in banks performance to be efficient. In the other side the population density has a little negative effect on efficiency; this consistent with the negative effect of deposits on efficiency, as the increase in population increases the deposits amount but affects banks efficiency negatively. Many recommendations and future research suggestions could be extracted from the results of this study. Further investigation can be made to analyze the factors those made the Malaysian Islamic banks more efficient than the Sudanese Islamic banks, these factors may help enhancing the Sudanese Islamic banking sector. Increasing the regression variables in bank market structure, risk structure and economic conditions could lead to different results. Concentrating on the Sudanese banking sector and extending the research period would provide further analysis of banks efficiency. References Ansari, Sanaullah, and ur-rehman, Kalil (2011). Comparative Financial Performance of existing Islamic Banks and Contemporary Conventional Banks in Pakistan. 2nd International Conference on Economics, Business and Management, IPEDR Vol.22, IACSIT Press. Bintawim, Samar Saud S. (2011). Performance analysis of Islamic banking: Some evidence from Saudi Arabian banking sector. Ritsumeikan Asia Pacific University (APU). Chen, Chuling (2009). Bank Efficiency in Sub-Saharan African Middle-Income Countries. International Monetary Fund, African Department, working paper WP/09/14. Dietsch, Michel, and Vivas Ana Lozano (2000). How the environment determines banking efficiency: A comparison between French and Spanish industries. Journal of Banking & Finance, Vol. 24, 985-1004. 203

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