Efficiency in Arabian Banking

This study investigates the efficiency levels of the Jordanian, Egyptian, Saudi Arabian and Bahraini banking systems. The study sample comprises information on 82 banks operating in Jordan, Egypt, Saudi Arabia and Bahrain over the 1992-2000 period. We utilized the Fourier-flexible stochastic frontier approach to estimate cost and profit efficiency levels in the banking systems under study. Cost efficiency estimates averaged around 95% over the 1992-2000 period. Standard and alternative profit efficiency estimates averaged 66% and 58%, respectively. Islamic banks are found to be the most cost and profit efficient while investment banks are the least (cost and profit efficient). Large banks, in assets terms, appear to be relatively more cost and profit efficient. Geographically, Bahrain banks are found to be the most efficient while Jordanian banks are the least efficient.