Effiency of Islamic banks: A comparison between Malaysia and Bahrain

Malaysia and Bahrain are leading as Islamic financial hubs and play a vital role to other countries. In competitive industry, both countries should enhance the performance in terms of efficiency. Hence, the main purpose of this study is to examine the efficiency level of Islamic banks in Malaysia and Bahrain over the period 2008 to 2012. The sample consists of 16 Islamic banks in Malaysia and 15
Islamic banks in Bahrain. Specifically, the aim of the study is to calculate overall technical efficiency (OTE) and its decomposition which are pure technical efficiency
(PTE) and scale efficiency (SE) of Islamic banks between Malaysia and Bahrain. A non-parametric based Data Envelopment Analysis (DEA) was used to estimate the
efficiency and this study were analyzed based on intermediation approach. Then, a series of parametric and non-parametric test is utilized in order to compare the
efficiency level between Malaysia and Bahrain. As a result, Islamic banks in Bahrain were more efficient compared to Islamic banks in Malaysia.