Non-Performing Loans and Bank Efficiency of Conventional and Islamic Banks in the Organization of Islamic Cooperation (OIC) Countries

This paper investigates the inter-temporal relationships between bank efficiency and problem loans and financing of conventional and Islamic banks as proposed by Berger and DeYoung (1997). The efficiency level and the managerial behavior of conventional and Islamic banks in the Organization of Islamic Cooperation (OIC) countries divided into the regions: Asian, African, Middle East and Turkey are investigated during the period 1993-2007. The findings show that cost efficiency is higher than profit efficiency for the sampled banks in the OIC countries. As for the inter-temporal relationships between bank efficiency and problem loans and financing, suggest that there is no evidence for ‘bad luck’ of conventional banks in all regions, but support the ‘bad management’ and ‘skimping’ except for the African region. On the other hand for Islamic banks, there is evidence of ‘bad luck’ in Asia, the Middle East and Turkey, and support for ‘bad management’ in African and Middle East region and Tu