Performance of Islamic Financial Services 227
banking market, Saudi Arabia had the highest equity ratio. The highest net
interest margin and the highest returns on adjusted assets (ROAA) were in
Bahrain and the highest return on adjusted equity (ROAE) was in Gambia.
At the regional level, Islamic banks from the Middle East were the most
effi cient, followed by Asia and Africa.
Yudistira (2004) provided evidence on the performance of 18 Islamic
banks over the period 1997–2000. Overall, the results suggested that
Islamic banks suffered slight ineffi ciencies during the Asian crisis of 1998–99.
Effi ciency differences across the sample data appeared to be mainly deter-
mined by country - specifi c factors. Islamic banks showed considerable
overall effi ciency across the sample period, with the year 2000 being the
most effi cient year. However, it is interesting to note that the Islamic bank-
ing industry experienced slight ineffi ciencies in 1998 and 1999 (0.870 and
0.897, respectively) compared to 1997 and 2000 (0.902 and 0.909, respec-
tively). Islamic banks in the Middle East region performed better in overall
technical effi ciency until 1998 but subsequently recorded sluggish results
compared to their counterparts elsewhere. The explanation for this is that
Islamic banks outside the Middle East region, especially those in the East
Asia region, experienced greater diffi culty in the Asian economic crisis in
1997–98. However, when most economies slowly recovered from the cri-
sis (from 1998 onwards), non - Middle East Islamic banks became slightly
more effi cient than their Middle East counterparts. Previous studies have
argued that the explanation lies on the depositors’ fl ight to quality, which
was found mainly in the East Asia region. To analyze the size–effi ciency rela-
tionship, Islamic banks across the sample were grouped by total assets in
which banks with more than US$600 million of assets were categorized as
“large” and banks below this level were categorized as “small - to - medium”
size. Concentrating on scale effi ciency (SCALE), it is clear that the largest
degrees of scale ineffi ciencies came from large Islamic Banks, with the lowest
SCALE score being 0.915 in 1998. It is interesting to note that all but one
of the large Islamic banks exhibited decreasing returns in 1997–98, whilst in
1999–2000 most showed constant returns to scale.
Bader et al. (2007) explored the cost, revenue, and profi t effi ciencies of
43 Islamic and 37 conventional banks in 21 countries in Africa, Asia, and
the Middle East, using fi nancial ratios for the period 1990–2005. Effi ciency
was measured based on different sizes and ages of banks and their locations.
The fi ndings showed no signifi cant differences in effi ciency scores between
them. On average, the larger the size of total assets, the higher the effi ciency
and, surprisingly, the revenue and profi t effi ciency scores for old banks were
lower than for new banks.
This research found no signifi cant difference in the mean scores between
big and small banks for all effi ciency categories. Therefore, any claims that
the cost, revenue, and profi t effi ciency of big banks are signifi cantly better
than those of small banks cannot be accepted. This evidence suggests that
size does not affect cost, revenue and profi t effi ciency. The fi ndings also
disprove the claims that the mean cost effi ciency of new conventional banks