Cost, Profit Efficiency, and Productivity of Islamic Banks and Islamic Windows in Oman

This study examines the cost efficiency, profit efficiency, and productivity of Islamic banks and Islamic windows in Oman. It compares the performance of the two banking models, identifies the factors influencing their efficiency, and evaluates productivity changes over the period 2015–2022. A quantitative study approach was employed using balanced panel data from two fully-fledged Islamic banks and six Islamic windows. Cost efficiency and profit efficiency were estimated using Data Envelopment Analysis (DEA), Tobit regression was applied to identify efficiency determinants, and the Malmquist Productivity Index (MPI) was used to measure productivity growth. The findings indicate that Islamic windows generally outperformed fully-fledged Islamic banks in both cost and profit efficiency, mainly due to shared infrastructure, economies of scale, and managerial support from their parent conventional banks. Productivity growth was primarily driven by technological progress, while capital adequacy and credit risk were significant determinants of efficiency for both banking models. The study contributes to the literature by providing one of the first institution-level comparisons of Islamic banks and Islamic windows in Oman and integrating efficiency, productivity, and determinant analyses within a single framework. The findings offer practical implications for the Central Bank of Oman, Islamic financial institutions, and policymakers seeking to enhance operational efficiency, productivity, and the sustainable development of the Islamic banking sector in support of Oman Vision 2040.

Islamic banks, Islamic windows, cost efficiency, profit efficiency, productivity

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