BOSNIA - HERZEGOVINA - ARTICLES - Efficiency of the Banking Sector Of Bosnia–Herzegovina with Special Reference to Relative Efficiency of the Existing Islamic Bank

8th International Conference on Islamic Economics and Finance

Efficiency of the Banking Sector Of Bosnia–Herzegovina with Special Reference to Relative Efficiency of the Existing Islamic Bank
Velid Efendić

The main aim of this research is to investigate how efficient is the only existing Islamic bank in Bosnia and Herzegovina (B-H) related to average efficiency of other banks from our sample. The analysis has been conducted on the sample of 18 conventional and one Islamic bank from data published by Banking Agency of Federation of B-H for 2009. The banking and economic environment of B-H as European, post-communist and transition country is of conventional type, and it has not been analyzed in this sense ever before. B-H has not made any regulatory or economic adoption in banking sector for developing of Islamic banking, so Islamic bank is treated as a conventional one. This research is conducted by using of nonparametric technique DEA (Data Envelopment Analysis) as a mostly used tool for analysis of efficiency in banking. We have used two output and three input analysis according to input oriented approach. According to majority of indicators, Islamic bank has lower efficiency comparing to their conventional counterparts. Also, we have done comparison and within the classes of banks that Islamic bank belongs to. In the class of foreign banks, and banks with assets up to quarter of billion of EUR, Islamic bank is again less efficient that their conventional counterparts. According to all efficiency indicators, there are a significant potential for efficiency improvements .(source)