Islamic Banks’ Bootstrap Efficiency and Its Determinants: Cross Country Evidence from Nine South and Southeast Asian Countries

This paper employs bootstrap Data Envelopment Analysis (DEA) to first estimate the technical efficiencies under constant returns to scale (CRS) and variable returns to scale (VRS) for Islamic banks across nine South and Southeast Asian countries (Indonesia, Malaysia, Brunei, Singapore, Maldives, Thailand, Sri Lanka, Bangladesh, and Pakistan). The findings reveal that the average VRS technical efficiency for the region is 82.1%, which is higher than the CRS technical efficiency of 76.6%, indicating input wastage of 17.9% and 23.4%, respectively. A cross-country comparison shows that Malaysia's Islamic banks have the highest average CRS efficiency (80.1%) and VRS efficiency (87.2%) in the region, followed by Pakistan, Bangladesh, and Indonesia. In the second stage, using Simar and Wilson's (2007) truncated regression, the study identifies that bank capital risk (EQTA), bank credit risk (NPLL), and bank liquidity (CASTA) are significant internal factors negatively influencing both CRS and VRS technical efficiencies in loans and deposit production. Among external factors, the bank loan market structure (Herfindahl-Hirschman Index (HHI)), per capita GDP, and a country-specific dummy variable significantly and positively impact bank efficiencies. The significance of bank internal and country-specific factors has important policy implications for bank management.