Efficiency and effectiveness are two factors that have been considered in measuring the overall performance of any institution. The objective of this study is to measure the technical efficiency scores as well as the effectiveness of the Malaysian banking sector, and thus, determine their overall performance. The study analyzes the performance of the Malaysian banking sector, which comprises two types of bank, namely commercial banks and Islamic banks. The study covers the period of 2011 to 2015. A two-stage analysis of Data Envelopment Analysis (DEA) has been used in this study. The results of the analysis show that the average efficiency scores are greater than the average effectiveness scores for both types of bank for the years 2011 until 2015, while conventional banks perform better than Islamic banks. An efficient bank does not always equate to it being more effective. Together, these two factors reflect the overall performance of a bank. An analysis on the correlation between efficiency, effectiveness, and overall performance scores indicates that a positive and strong correlation exists between effectiveness and performance, whereas there is a negative correlation between efficiency and effectiveness scores.
Abdul-Majid, M., Saal, D. S., &Battisti, G. (2010). Efficiency in Islamic and conventional banking: an international comparison. Journal of Productivity Analysis, 34(1), 25-43.
Ahmad, S., Jusoh, W. N. H., Rahman, A., & Rahim, A. (2012). Measuring the malaysianislamic subsidiaries and commercial banks’ efficiency.
Achabal, D., Heineke, J., & McIntyre, S. H. (1984). Issues and perspectives on retail productivity.
Asmild, M., Paradi, J. C., Reese, D. N., & Tam, F. (2007). Measuring overall efficiency and effectiveness using DEA. European Journal of Operational Research, 178(1), 305-321.
Charnes, A., Cooper, W. W., & Rhodes, E. (1978). Measuring the efficiency of decision making units. European journal of operational research, 2(6), 429-444.
Drucker, P. F. (1977). An introductory view of management: instructor's manual. Harper and Row.
Hamid, N., Ramli, N. A., & Hussin, S. A. S. (2017). Efficiency measurement of the banking sector in the presence of non-performing loan. In A. Kilicman, H. M. Srivastava, M. Mursaleen, & C. M. Khalique (Eds.), AIP Conference Proceedings (Vol. 1795, No. 1, p. 020001). AIP Publishing.
Ho, C. T., & Zhu, D. S. (2004). Performance measurement of Taiwan's commercial banks. International Journal of Productivity and Performance Management, 53(5), 425-434.
Kamarudin, N., Ismail, W. R., & Mohd, M. A. (2014). Assessing efficiency and effectiveness of Malaysian Islamic banks: A two stage DEA analysis. In W. Zawiah Wan Zin, S. C. Dzul-Kifli, F. A. Razak, & A. Ishak (Eds.), AIP Conference Proceedings (Vol. 1602, No. 1, pp. 934-938). AIP.
Kaveh, M. (2011). Iranian bank branches performance by two stage DEA model. International Proceedings of Economics Development & Research, 4, 213-217.
Keh, H. T., Chu, S., & Xu, J. (2006). Efficiency, effectiveness and productivity of marketing in services. European Journal of Operational Research, 170(1), 265-276.
Kumar, S., & Gulati, R. (2009). Measuring efficiency, effectiveness and performance of Indian public sector banks. International Journal of Productivity and Performance Management, 59(1), 51-74.
Mouzas, S. (2006). Efficiency versus effectiveness in business networks. Journal of Business Research, 59(10), 1124-1132.
Ozcan, Y. A. (2008). Health care benchmarking and performance evaluation. An assessment using data envelopment analysis (DEA).
Raphael, G. (2013). Measuring efficiency, effectiveness and performance of Tanzanian commercial banks: A two stage analysis. European Journal of Business and Management, 5(7), 196-206.
Samad, A. (1999). Comparative efficiency of the Islamic bank vis-à-vis conventional banks in Malaysia. IIUM Journal of Economics and Management, 7(1), 1-27.
Yudistira, D. (2003). Efficiency in Islamic banking: An empirical analysis of 18 banks. Islamic financial architecture, 479.
In-Text Citation: (Ramli, Khairi, & Razlan, 2018)
To Cite this Article: Ramli, N. A., Khairi, S. S. M., & Razlan, N. A. (2018). Performance Measurement of Islamic and Conventional Banking in Malaysia Using Two-stage Analysis of DEA Model. International Journal of Academic Research in Business and Social Sciences, 8(4), 1165–1177.
Copyright: © 2018 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
