The impact of performance, liquidity and credit risks on banking diversification in a context of financial stress

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Oussama Gafrej ◽  
Mouna Boujelbéne
Keyword(s):  
Financial Stress ◽  
The Other ◽  
Islamic Banks ◽  
Diversification Strategy ◽  
Content Type ◽  
Credit Risks ◽  
Bank Managers ◽  
Conventional Banks ◽  
Foreign Directors ◽  
The Impact

Purpose The purpose of this paper is to examine the relation “diversification-risk-performance” for Islamic and conventional banks in different financial stress levels. Also, it aims to investigate the impact of the structure of board directors, macroeconomic variables and banking specific factors on banking diversification. Design/methodology/approach The authors use generalized least squares regressions to examine the impact of banking specific, macroeconomic and governance variables on investment diversification of 66 Islamic and conventional banks during the period from 2006 to 2018. In addition, this study uses panel threshold regressions to study the impact of banks’ profitability and risks on investment diversification in different financial stress levels. Findings The findings show liquidity risk, performance, credit risk and capitalization ratio are significantly related to investment diversification of Islamic banks. On the other hand, liquidity and credit risks, capital to total assets ratio and size have a significant influence on investment diversification of conventional banks. In addition, the diversification strategy of Islamic banks is less sensitive to macroeconomic indicators. As regards to governance variables, the results suggest that the board size, the executive directors and the foreign directors have significant impact on the investment diversification in Islamic banks. On the other hand, chief executive officer duality and foreign directors affect significantly the investment diversification of conventional banks. This study also found that financial stress enables us to develop a better understanding of the relation “performance-risks and diversification.” Practical implications It is expected that the findings of this paper can be used by Islamic and conventional banks in Gulf Cooperation Council (GCC) region that seek to manage the diversification strategy by reducing risk-taking and maximizing profitability. This study suggests that bank managers should consider the level of financial stress during the development of diversification strategy. It provides a better understanding for bank managers about the effect of bank specific and macroeconomics factors as well as governance variables on diversification. Originality/value This study focuses on providing an extension of the existing literature by studying the impact of financial stress indices on the relation between banks’ risk-performance and investment diversification for Islamic and conventional banks in the GCC region.

Fair value and banking contagion

2016 ◽  
Vol 7 (3) ◽  
pp. 215-236 ◽  
Author(s):  
Leila Gharbi ◽  
Halioui Khamoussi
Keyword(s):  
Data Model ◽  
Banking Sector ◽  
Fair Value ◽  
Islamic Banks ◽  
Fair Value Accounting ◽  
Content Type ◽  
Gcc Countries ◽  
Conventional Banks ◽  
Value Changes ◽  
The Impact

Purpose This paper aims to explore empirically the impact of fair value accounting on banking contagion in a comparative context between Islamic banks and conventional banks. Design/methodology/approach The analysis of the impact of fair value changes on banking contagion is carried out through a panel data model. This study covers 20 Islamic banks and 40 conventional banks operating in the Gulf Cooperation Council (GCC) countries during nine years from 2003 to 2011. Findings Empirical evidence shows that there is a significant change in dynamic volatility in GCC banking sector because of financial crisis 2008. However, results fail to confirm the hypothesis that fair value accounting is significantly associated with an increase of banking contagion for both Islamic and conventional banks operating in GCC countries. Originality/value The outcome of this study provides some insights for academicians, accountants as well as regulators in terms of enhancing the effectiveness of accounting practices.

Macroeconomic shocks, fragility and home financing in Malaysia: can rental index be the answer?

2018 ◽  
Vol 9 (1) ◽  
pp. 17-44 ◽  
Author(s):  
Rosylin Mohd Yusof ◽  
Farrell Hazsan Usman ◽  
Akhmad Affandi Mahfudz ◽  
Ahmad Suki Arif
Keyword(s):  
Interest Rates ◽  
Islamic Banks ◽  
Macroeconomic Shocks ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
Rental Rate ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence. Design/methodology/approach The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing. Findings This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates. Research limitations/implications This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry. Practical implications The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest. Social implications Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study. Originality/value This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

Can BRICS and ASEAN-5 emerging economies benefit from bank diversification?

2019 ◽  
Vol 27 (1) ◽  
pp. 43-69 ◽  
Author(s):  
Syed Moudud-Ul-Huq
Keyword(s):  
Risk Taking ◽  
Generalized Method Of Moments ◽  
The Other ◽  
Set Covering ◽  
Diversification Strategy ◽  
Data Set ◽  
Content Type ◽  
Diversification Benefit ◽  
The Impact ◽  
The Relationship

Purpose This paper aims to empirically investigate the impact of bank diversification on performance and risk-taking behavior. The analysis uses an unbalanced panel data set covering the period between 2007 and 2015 for a total of 1,397 banks from ASEAN-5 and BRICS economies. Design/methodology/approach Dynamic panel generalized method of moments (GMM) has been used primarily to examine the relationship between bank diversification on performance and risk-taking and later, validate the core results by incorporating two-stage least squares (2SLS). Findings Similar to the results of previous studies based on the developed economy, this study also confirms the hypothesis of the portfolio diversification. The key robust result is that the benefits from revenue and assets diversification are heterogeneous and the BRICS banks achieve higher benefit from using both diversification strategies. On the other hand, ASEAN-5 banks fail to show the significant advantage from assets diversification. Among the diverse sources of income, interest is not a major determinant of efficiency and bank’s stability, while ASEAN-5 banks should foster commission and others income as mechanisms for diversification benefit in the region. Originality/value A few studies are available in the current literature which examines the impact of revenue and assets diversification on either bank performance or risk-taking in the developed economy’s context. However, very few studies are found that examine the relationship between bank diversification, performance and risk-taking together. Moreover, to the best of the author’s knowledge, there is a dearth of literature on this topic that built on the comparative analysis between two regions, i.e. ASEAN-5 and BRICS. As a result, the empirical results of this research provide useful information to the stakeholders so that they can enhance bank diversification strategy and implement them successfully by considering the other factors.

How important is CRM toward customer’s loyalty to conventional and Islamic bank marketing strategy?

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jono Mintarto Munandar ◽  
Dewi Oktaviani ◽  
Yenni Angraini
Keyword(s):  
Customer Loyalty ◽  
Structural Equation ◽  
Relevant Literature ◽  
Internet Banking ◽  
Service Industries ◽  
Equation Modeling ◽  
Islamic Banks ◽  
Content Type ◽  
Conventional Banks ◽  
The Impact

Purpose This paper aims to test the effect of customer relationship management (CRM) strategy on customer loyalty of bank customers. Design/methodology/approach The questionnaire derived from previous studies along with relevant literature was completed by 100 customers of conventional banks and 100 customers of Islamic banks. Structural equation modeling assessed the impact on customer loyalty on three key constructs of CRM programs (continuity marketing, one to one marketing and partnering). Findings Two out of three variables, which is continuity marketing and partnering, have significant effects on both banks. Continuity marketing is the dominant variable at conventional banks. Partnering is the dominant variable at Islamic banks. Research limitations/implications The effects of CRM programs on customer loyalty observed in this study required further research. The data used in this study were only gathered from the banking industry in Indonesia, and so more research studies are needed to support the conclusion. Practical implications It is reasonable to conclude that customer loyalty can be built, strengthened and retained by CRM programs, aimed at increasing security and building trust in each transaction, improving partnership, optimize another bank’s service product like internet banking and SMS banking and communicating with customers in a timely manner. Originality/value Advanced and specific knowledge relevant to CRM in banking service industries.

Predicting behavioural intention toward Islamic bank: a multi-group analysis approach

2019 ◽  
Vol 10 (4) ◽  
pp. 1091-1103 ◽  
Author(s):  
Dwi Suhartanto
Keyword(s):  
Group Analysis ◽  
Partial Least Square ◽  
Least Square ◽  
Behavioural Intention ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Bank Managers ◽  
The Impact ◽  
Practical Implications

PurposeThis study aims to examine behavioural intention towards Islamic bank including three determinants: religiosity, trust and image across customers and non-customers.Design/methodology/approachThis study uses 400 samples, consisting of customers and non-customers of Islamic banks collected from Bandung, Indonesia. Partial least square was applied to evaluate the association between religiosity, trust, image and behavioural intention.FindingsThis study reveals a direct effect of religiosity on behavioural intention and indirect effect through trust and image for both customers and non-customers of Islamic banks. Although the impact of religiosity on trust, image and behavioural intention is significant in both the customer and non-customer sample, the effect of religiosity on the customer is higher compared to that of non-customer.Practical implicationsThis study provides an opportunity for Islamic bank managers to increase the behavioural intention among the customer, as well as non-customer. To increase behavioural intention amongst customers and non-customers, Islamic bank managers need to keep the bank operation compliant with theSharialaw, maintain a good image and gain trust from both customers and non-customers.Originality/valueThis study is the first attempt to evaluate the behavioural intention towards Islamic bank across customers and non-customers.

Does the country’s religion affect the financial performance of conventional and Islamic banks? Comparative study in the international framework

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Achraf Haddad ◽  
Achraf Haddad
Keyword(s):  
Financial Performance ◽  
Generalized Method Of Moments ◽  
Developed Countries ◽  
Emerging Countries ◽  
Islamic Banks ◽  
Governance Mechanism ◽  
Content Type ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose The purpose of this study is to compare the impact of religion on the financial performance of conventional and Islamic banks in the framework of stakeholders’ theory. Design/methodology/approach Few studies have focused on studying the impact of religion on banking performance. Although religion represents an external governance mechanism for financial institutions, by using the generalized method of moments (GMM), this topic constitutes a research opportunity. The already modeled variables are collected from 76 countries located on 5 continents. The data were collected from DATASTREAM, banks’ annual reports, WIKIPEDIA and World Bank. It concerns 210 banks of each type during the period (2010–2020). Findings The author retained that religion negatively affects the financial performance of both conventional and Islamic banks. More specifically, results showed that religion affected the liquidity and solvency of two bank types. It also affected conventional banks’ profitability and efficiency of conventional banks. Research limitations/implications I summarized the theoretical contribution in the integration of a new original governance category to enhance its presence with impacts directly affecting the banks’ financial performance. Empirically, the study can be seen as a compass for all stakeholders to consider environmental, behavioral and doctrinal factors in studying the financial performance evolution and to become more competitive in the banking market. Originality/value Although conventional banks located in developed countries are different from those existing in emerging countries and Islamic banks located in developed countries are different from those existing in emerging countries, I carried out a diversified study in the global context. Referring to the comparative literature review between conventional and Islamic banks, the study was the first conditional research that compared the impacts of religion on the financial performance of conventional and Islamic banks.

Intellectual capital efficiency and bank’s performance

2019 ◽  
Vol 31 (4) ◽  
pp. 672-694 ◽  
Author(s):  
Amina Buallay ◽  
Richard Cummings ◽  
Allam Hamdan
Keyword(s):  
Financial Performance ◽  
Intellectual Capital ◽  
Positive Relationship ◽  
Market Performance ◽  
Value Added ◽  
High Tech ◽  
Islamic Banks ◽  
Content Type ◽  
Conventional Banks ◽  
The Impact

Purpose Intellectual capital (IC) plays a pivotal role in the high-tech and knowledge-based economic sectors. With the emergence of FinTech, which, with respect to the banking sector, is merging high-tech with the k-economy, there is an emerging need to highlight the importance and understand the dynamics of bank IC. With respect to Gulf Cooperation Council (GCC) economies, where FinTech has become de rigueur, banking is bifurcated into Islamic and banking sectors. Through comparative empirical analysis, the purpose of this paper is to examine IC efficiency in Islamic and conventional banks with a view to elucidating the impact of IC, in aggregate and decomposed into its components, on an operational, financial and market performance of Islamic banks juxtaposed with conventional banks. Design/methodology/approach Using data collected from 59 banks for five years (2012-2016) involving 295 observations, an independent variable derived from the modified value added IC (MVAIC) components are regressed against dependent bank performance indicator variables [Return on Assets (ROA), Return on Equity (ROE) and Tobin’s Q (TQ)]. Two types of control variables complete the regression analysis in this study: bank-specific and macroeconomic. Findings The findings elicited from the empirical results demonstrate that there is positive relationship between IC efficiency and financial performance (ROE) and market performance (TQ) in Islamic banks. In conventional banks, however, there is a positive relationship between IC and operational performance (ROE) and financial performance (ROE). Originality/value The model in this paper presents a valuable analytical framework for exploring IC efficiency as a driver of performance in dual-sector banking economies characterized by co-existence of Islamic and conventional financial institutions. In addition, this paper highlights bank management lacunae manifesting in terms of the weak nexus between: IC and asset efficiency (ROA) in Islamic banks and IC and market value (TQ) in conventional banks.

scholarly journals The impact of Islamic banking model and Islamic financial development on bank performance: evidence from dual banking economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tanveer Ahsan ◽  
Muhammad Azeem Qureshi
Keyword(s):  
Financial Development ◽  
Fixed Effects ◽  
Generalized Method Of Moments ◽  
Bank Performance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Country Level ◽  
Conventional Banks ◽  
The Impact

Purpose The purpose of this study is to develop an Islamic Banking Index representing the Islamic banking model and to investigate its impact on the performance of Islamic and conventional banks. This study also analyzes the impact of Islamic financial development on bank performance. Design/methodology/approach The authors collected the data from 23 countries for the period from 2010 to 2018 and developed a composite Islamic Banking Index. The authors applied the generalized method of moments on 3,542 bank-year observations for both Islamic and conventional banks to analyze the impact of the Islamic Banking Index on bank performance. The results of the study are robust to time-fixed effects, country-level time-varying factors and endogeneity issues. Findings The authors found that Islamic Banking Index positively contributes to the return on assets (ROAit) of Islamic banks only. This impact becomes highly significant in countries with comparatively higher Islamic financial development. This finding suggests that the Islamic financial development in a country provides a supportive operating environment to Islamic banks and increases their performance. The authors also found that Islamic Banking Index positively contributes to the return on equity (ROEit) of both types of banks. Practical implications The authors argue that moving away from interest-based products and focusing more on diversified portfolios can boost the performance of both types of banks without increasing their risk levels. Originality/value To the best of the authors’ knowledge, this is the first study that develops a composite Islamic Banking Index based on differentiating factors of the Islamic banking model and investigates the impact of Islamic Banking Index and Islamic financial development on bank performance.

FDI inflows and bank deposits: evidence from 18 MENA economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdulazeez Y.H. Saif-Alyousfi
Keyword(s):  
Islamic Banks ◽  
Dynamic Panel ◽  
Fdi Inflows ◽  
Content Type ◽  
Estimation Techniques ◽  
Mena Countries ◽  
Bank Deposits ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose This paper aims to examine and compare the impact of foreign direct investment (FDI) inflows on bank deposits in aggregate as well as at the level of conventional and Islamic banks in Middle East and North Africa (MENA) countries. The study also tests hypotheses of direct and indirect impacts of FDI flow and FDI stock on bank deposits. Design/methodology/approach Static and dynamic panel generalized methods of moments (GMM) estimation techniques are applied to analyze a large data set of 491 commercial banks (422 conventional banks and 69 Islamic banks) across 18 MENA countries between 1993 and 2017 (12,275 year observations). Findings Empirical results indicate that inflowing FDI flow and FDI stock have a significant negative direct impact on deposits of MENA banks. The results lend support for the direct channel hypothesis for the effect of FDI on bank deposits and find no evidence in support of the indirect channel hypothesis. FDI inflows affect bank deposits directly via increased FDI-related excessive competition in the banking market. Deposits from conventional banks appear to be more affected than those from Islamic banks. The variation may due to the fact that Islamic banks have fewer multinational corporations (MNC) customers than conventional banks and therefore are less sensitive to fluctuations in FDI. Practical implications From this analysis, this study concludes that foreign investments have a higher productivity than local investments in MENA region. Attracting more FDI is aimed at increasing overall national productivity through competition. However, governments would be wise to enact such a policy to maximize benefits and minimize potential harm to local industry. Furthermore, FDI policy should encourage small to medium-size banks and firms (SMEs)’ participation and linkage with multinational banks and MNCs, while upgrading research and development institutions and innovation activities to help SMEs to benefit from potential spillovers from foreign presence in the industry. In addition, the linkage and connection between SMEs and foreign firms should be strengthened and promoted by government policy. Originality/value This study is the first of its kind to examine the effect of FDI inflows on bank deposits. It also provides an in-depth quantitative analysis of the impact of FDI flow and FDI stock, separately, on bank deposits for both conventional and Islamic banks. It distinguishes between direct and indirect channels through which FDI inflows may affect bank deposits. The study analyzes 25 years of panel data for 491 banks (12,275 year observations) and uses both static and dynamic panel GMM estimation techniques to analyze the data.

Competition and market structure of the Malaysian Islamic banking industry

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohd Faizal Basri
Keyword(s):  
Market Structure ◽  
Monopolistic Competition ◽  
Banking Industry ◽  
Financial System ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Under Performing ◽  
Conventional Banks ◽  
The Impact

Purpose This paper aims to investigate the impact of competition in the Malaysian Islamic banking industry and the market structure of the industry by focusing on the particular impact created by the entrance of fully fledged foreign Islamic banks plus the introduction of Islamic subsidiaries of existing conventional banks in the country (domestic and foreign ownership). Design/methodology/approach Using a sample of 16 Islamic banks in the country that operated between 2008 and 2015, this paper measures the competition among the Islamic banks using the Panzar-Rosse Model and by looking at the market structure of the industry using the k-bank concentration ratio and the Herfindahl-Hirschman Index. Findings The study found that between 2008 and 2015, the Malaysian Islamic banking industry operated in monopolistic competition conditions with a moderately concentrated market structure. The introduction of foreign Islamic banks caused the market structure to become more competitive and less concentrated by comparing the results that include foreign Islamic banks against the results generated with a subsample of domestic Islamic banks only. Bank Negara Malaysia’s (BNM’s) financial reform and the liberalisation of the financial system were proven to induce competition making the financial system more resilient, competitive and dynamic. The Islamic banks have recorded consistently increased annual performance with the under-performing Islamic banks catching up on the top performers. Originality/value Very few research studies have focused on the market structure and competition of the Islamic banking industry in Malaysia, especially using recent financial data; this study will contribute to filling the existing gap.

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