Dynamic Paths to Islamic and Conventional Bank Cost Efficiency: When Size and Profit Collide in HIMI Economies

Authors

  • Nur Hazimah Amran Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Malaysia
  • Wahida Ahmad Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Malaysia
  • Nur Syahirah Rokeman Faculty of Business and Management, Universiti Teknologi MARA, Malaysia
  • Sarah Nursaadah Mohd-Zameri Faculty of Business and Management, Universiti Teknologi MARA, Malaysia
  • Nor Hazirah Mohamad-Shukri Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Malaysia

DOI:

https://doi.org/10.24191/jeeir.v13i2.8661

Keywords:

bank, efficiency, Basel Accords, intellectual capital, financial risk, Islamic banks

Abstract

This study investigates the determinants of cost efficiency in Islamic and conventional banks operating in high-income and middle-income (HIMI) countries from 2015 to 2024, with a focus on the moderating effect of profitability on the relationship between bank size and cost efficiency. This study uses an unbalanced panel of 102 banks across 10 countries and employs a two-step system Generalized Method of Moments (GMM) approach. The results show that efficiency is persistent over time, indicating that past operational and governance practices have lasting impacts. Profitability directly improves cost efficiency and amplifies the benefits of larger bank size through economies of scale. Highly profitable Islamic and conventional banks demonstrate greater improvements in cost efficiency as their size expands. In contrast, banks with lower profitability experience only modest gains in cost efficiency as they grow. Higher credit risk reduces cost efficiency by increasing monitoring and compliance costs, while investments in intellectual capital are found to be vital for long-term competitiveness as it may slowly lower cost efficiency. Crisis periods are associated with higher efficiency, as resource constraints encourage tighter cost control. The findings provide important implications for policymakers, encouraging them to support efficiency without discouraging innovation and compliance. Finally, the study also lays out important implications for bank managers to strengthen risk management, strategically invest in intellectual capital, and leverage profitability to maximize the efficiency gains associated with the bank size.

Author Biographies

Nur Hazimah Amran, Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Malaysia

Nur Hazimah Amran is a Senior Lecturer at Universiti Teknologi MARA, Malaysia (ORCID: https://orcid.org/0000-0002-3700-3091. She earned her doctoral degree (PhD) in 2022 from Universiti Teknologi MARA. She also holds position as the coordinator of e-Learning of Arshad Ayub Graduate Business School, Universiti Teknologi MARA. Her main research interest is in the area of banking, risk, finance, financial management, financial behaviour and Islamic finance. She has published several journal articles, among others; Management Accounting Review, International Journal of Economics and Management, and Malaysian Journal of Consumer and Family Economics. She can be reached through her email at hazimahamran@uitm.edu.my.

Wahida Ahmad, Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Malaysia

Wahida Ahmad is an Associate Professor of Finance at Universiti Teknologi MARA, Malaysia (ORCID: https://orcid.org/0000-0002-8874-8229). She earned her doctoral degree (PhD) in 2013 in economics and finance from La Trobe University, Australia. Her main research interest is in the area of finance, banking, productivity, sustainability and financial behaviour. She has published in various journal, among others; Management Accounting Review, The Singapore Economic Review, Global Business and Management Research: An International Journal, Journal of Entrepreneurship, Business and Economics, Information Management and Business Review, Social and Management Research Journal and Jurnal Intelek. She can be reached through her email at wahida@uitm.edu.my.

Nur Syahirah Rokeman, Faculty of Business and Management, Universiti Teknologi MARA, Malaysia

Nur Syahirah Rokeman is currently a full-time postgraduate student under the Faculty of Business Management (FBM), Universiti Teknologi MARA (UiTM) Shah Alam, Selangor (ORCID: https://orcid.org/0009-0009-0362-2204). Her main research interest is in the field of banking and finance. She has published several papers on these field such as the Global Business and Management Research: An International Journal and Environment-Behaviour Proceedings Journal. She can be reached through her email at syahirah35@gmail.com.

Sarah Nursaadah Mohd-Zameri, Faculty of Business and Management, Universiti Teknologi MARA, Malaysia

Sarah Nursaadah Mohd-Zameri is a PhD student at the Faculty of Business and Management, Universiti Teknologi MARA, Malaysia (ORCID: https://orcid.org/0009-0008-8769-811X). She is also a part-time lecturer at Universiti Teknologi MARA and Universiti Kuala Lumpur, teaching courses in finance, banking, and personal finance. Her main research interests are in banking and finance, with a particular focus on bank performance, bank efficiency, risk management, the impact of regulatory frameworks on financial institutions, and environmental, social, and governance (ESG) issues. She can be reached through her email at sarah.zameri@gmail.com.

Nor Hazirah Mohamad-Shukri, Arshad Ayub Graduate Business School, Universiti Teknologi MARA, Malaysia

Nor Hazirah Mohamad-Shukri is a PhD student in the field of Finance at Arshad Ayub Graduate Business School, Universiti Teknologi MARA (ORCID: https://orcid.org/0009-0007-9095-8755). Her main research activity focuses on sustainable banking, particularly examining the role of financial metrics and Environmental, Social, and Governance (ESG) performance in Asia-Pacific banking institutions. Her current research work contributes to both academic literature and policy discussions on promoting sustainable finance in the region. She can be reached through her email at nhazirahshukri@gmail.com.

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2025-06-30

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Amran, N. H., Ahmad, W., Rokeman, N. S., Mohd-Zameri, S. N., & Mohamad-Shukri, N. H. (2025). Dynamic Paths to Islamic and Conventional Bank Cost Efficiency: When Size and Profit Collide in HIMI Economies. Journal of Emerging Economies and Islamic Research, 13(2), 8661. https://doi.org/10.24191/jeeir.v13i2.8661

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Vol. 13 No. 2 (2025): June 2025 Issue

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