Abstract
Purpose
– Although there exists a huge pile of literature on the performance of banking sector, a gap exists in developing countries like Pakistan where only limited work has been previously done to evaluate the performance of banking sector. In fact, most of the previous studies are based on traditional ratio analysis. Other studies not only have applied modern techniques of frontier approach like data envelopment analysis (DEA) but also are limited to the measurement and comparison of efficiency scores of various groups of banks. The purpose of this study is to find out the determinant of variation in the performance of banks.
Design/methodology/approach
– This study computes various elements of performance, including efficiency and effectiveness, and finds out the factors of variation in each component of performance by using the Tobit regression.
Findings
– Overall performance of Islamic banks was influenced positively by age, capitalization, size, non-markup expenditure, minimum capital requirement and gross domestic product (GDP) growth rate, whereas profitability, concentration and inflation had a negative relationship.
Research limitations/implications
– Islamic financial institutions are in their infancy stage. With the passage of time, one can find the exact trend in the performance and efficiency of these institutions.
Practical implications
– This study guides the investors in the process of their decision-making.
Social implications
– Society can also take the advantage of the moral steps which are taken by these institutions.
Originality/value
– This is an original study.