Comparative Bootstrap DEA Technical Efficiencies and Determinant Factors: Evidence From the Islamic Banks of Bahrain and United Arab Emirates

Abstract

Applying the Bootstrap DEA method the paper obtained the technical efficiencies of the Islamic banks of Bahrain and the United Arab Emirates (UAE) using the panel data of 2011-2016. The paper found the 95 percent confidence interval mean bias-corrected overall technical efficiencies (OTEBC) of the Islamic banks of Bahrain was less than that of UAE. The OTEBC of Bahrain and UAE was 85.4 percent and 99.1 percent respectively suggesting the average inefficiency (14.6 percent) of the Islamic banks of Bahrain was higher than that (0.5 percent) of the UAE bank and the difference was significant. The paper applied the Simar-Wilson regression (both sided truncated) for determining the efficiency factors. The regression results of pooled data found that non-performance loan to total assets (NPLTA), loan to total assets (LOATA), profitability index (ROA), and bank-size (LOGTA) were significant factors. The regression results found that the efficiency of the Islamic banks was positively related to ROA and negatively related to NPLTA, LOANTA, DEPTA, and LOGTA. Results of regression, running the regression separately for Bahrain and UAE, confirmed the findings of pooled results. The country wise regression results of the Bahrain and UAE Islamic banks found that the NPLTA, LOATA, and LOGTA were significant factors and they are negatively related to the efficiency of the Islamic banks. The finding of this paper that LOANTA was negatively related to bank TE supported the finding of Zelenyuk (2015).