SIZE AND RETURNS TO SCALE OF THE ISLAMIC BANKING INDUSTRY IN MALAYSIA: FOREIGN VERSUS DOMESTIC BANKS

摘要: This paper investigates the efficiency of Malaysian Islamic banking sector during period 2001-2004. The estimates individual banks are evaluated using non-parametric Data Envelopment Analysis (DEA) method. method allows for decomposition technical (overall) into its pure and scale components. In accordance with financial system principles, intermediation approach is applied to specification input-output variables. findings suggest that inefficiency dominates in sector, implying have been operating at wrong operations. We also found domestic exhibited higher compared their foreign peers. Although banks’ lower counterparts, results seem relatively more efficient controlling costs, thus was mainly attributed scale.JEL classification: G21, G28Key words: efficiency, envelopment analysis (DEA), Malaysia.