Efficiency of Islamic and Conventional Banks in Financial and Economic crisis

Financial crisis and its contagion to real sector of economy can be seen as a good space to evaluate Islamic bank's performance compared with conventional bank. In this paper, we continue this line to study how financial and economic crisis affect the cost efficiency of Islamic and conventional banks. Our sample contains Jordan, United Arab Emirates, Indonesia, Bahrain, Bangladesh, Pakistan, Turkey, Saudi Arabia, Palestine, Qatar, Kuwait, Malaysia and Egypt. Findings show that average cost efficiency of Islamic banks is the same as conventional banks in financial crisis. But when we consider conventional bank’s access to government’s special support, this finding can be translate to better performance of Islamic banks. On the contrary, in economic crisis, conventional banks have higher efficiency and better performance than Islamic banks. This finding can show that Islamic banking have to improve its ability to manage risks in real markets