DATA ENVELOPMENT ANALYSIS (DEA) EFFICIENCY OF ISLAMIC BANKS IN ASEAN: A CROSS-COUNTRY COMPARATIVE EXAMINATION OF INTERMEDIATION AND PRODUCTION EFFICIENCY APROACH

Abstract

Abstract: In 2015 ASEAN leaders agreed to form an integrated market called ASEAN
Economic Community (AEC) that enables countries in Southeast Asia to trade goods
and services more easily, attracting strong demand from investors and heightened the
competition in the industry. The heightened of competition should encourage banks to
reduce operating costs and, hence, eliminate inefficiencies in the banking industry. The
objective of this study is to examine the relative efficiency scores of Islamic banks
across six countries in ASEAN from 2011 to 2018. The study implement Data
Envelopment Analysis under the intermediation and production approach. Despite the
rapid growth of the Islamic banking, examination of Islamic banks at a cross-country
level is still at its infancy, especially in ASEAN. Therefore, this research aims to fill the
gap in the literature by providing the empirical evidence on the efficiency of Islamic
banks in ASEAN during 2011-2018. The analysis is divided into two frontiers, namely
single-multiyear frontier to examine the efficiency trends of all ASEAN countries in
eight years and cross-sectional frontier to compare the efficiency of countries in
ASEAN per year. The single multi-year frontier shows that the Philippines, Malaysia,
Thailand and Singapore presents positive trend efficiency, while Indonesia fell, and
Brunei fluctuated. Cross-sectional frontier shows that Brunei is the country that is most
frequent in achieving optimum efficiency. Furthermore, the higher the efficiency of an
Islamic banking

Keywords: Data Envelopment, Analysis (DEA), Efficiency, Islamic Banks, Association of Southeast Asian Nations (ASEAN)