Lending cyclicality in dual banking system: empirical evidence from GCC countries

2020 ◽  
Vol 11 (9) ◽  
pp. 2113-2135
Author(s):  
Zied Saadaoui ◽  
Hichem Hamza
Keyword(s):  
Business Cycle ◽  
Banking System ◽  
Oil Price ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Gmm Estimator ◽  
Banking Systems ◽  
Gcc Countries ◽  
The Stability

Purpose The purpose of this paper is to check if there is a procyclical lending behaviour in dual banking systems of the Golf Cooperation Council (GCC) countries. The study also tries to control for the role of Islamic banks in amplifying or mitigating the procyclicality of dual banking systems. Design/methodology/approach Estimation of a dynamic panel model using annual observations on a sample of 81 banks based in the GCC countries between 2005 and 2018. The study uses two business cycle indicators as dependent variables, namely, output gap and oil price gap. Findings The system generalilzed method of moments (GMM) estimator and robustness checks confirm the procyclical lending pattern of dual banking systems in the GCC. Estimation outputs also indicate that this procyclicality is more pronounced during economic slowdowns. However, it is found that Islamic banks’ lending is less procyclical, giving support for the stability view of Islamic banking systems. The authors think that the implementation and conduct of macroprudential policies are very challenging for banking authorities when Islamic banks and conventional banks operate under the same regulatory framework. Research limitations/implications The research paper may suffer from some limitations. Indeed, exploring panel data instead of country-case data may lead to a problem of heterogeneity that may underpin the credibility of the econometrical estimations. To deal with this problem by introducing a set of bank-specific and time-specific dummies. Furthermore, small N samples (N = number of individuals) may affect the reliability of the tests for the validity of instruments and autocorrelation used under the GMM estimator, leading to inefficient results. Consequently, the number of selected banks is extended as much as possible (81 banks), becoming important comparing to the time dimension of the panel. Practical implications Policymakers and regulators are incited to embed the perspectives of Islamic finance regarding lending cyclicality in dual banking systems, which promote the efficiency of resource allocation to the financing of assets and by consequence enabling financial stability. The stability view of the Islamic banking system could prompt policymakers and regulators to encourage the implementation and development of Islamic banks. Originality/value The present paper tries to overcome the lack of empirical studies on the procyclicality of dual banking. The study contributes to this novel literature in two ways. First, it focuses exclusively on GCC banking systems. In fact, compared to other emerging markets, business cycles characterizing GCC are specific because of the role played by the oil and gas revenues in the economic growth and financial system is crucial. Second, this paper brings into evidence the procyclicality of GCC banking systems also when the oil price is taken as a business cycle indicator.

State ownership and bank performance: conventional vs Islamic banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Turki Alshammari
Keyword(s):  
Banking Sector ◽  
Banking System ◽  
Positive Influence ◽  
State Ownership ◽  
Bank Performance ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Banking Systems ◽  
The Impact

Purpose This paper aims to examine the effect of state ownership on bank performance for all banks in the Gulf Cooperation Council (GCC) countries during the period 2003 – 2018, for two distinct banking systems: the conventional and the Islamic banking systems. Design/methodology/approach To achieve the goal of the study, this paper uses a mean t-test to examine the mean difference of the related variables for both banking systems, and a regression test (using the GMM method) to explore the effect of state ownership on bank performance. Findings The most important result of the analysis is that state ownership has a significantly positive influence on bank performance for conventional banks but not for Islamic banks, in the GCC area. Originality/value This study adds to the scarce related literature comparative empirical results with respect to the impact of ownership on the performance of two different banking systems: the conventional system and the Islamic banking system in the GCC area. This study is likely to have implications for policymakers in terms of developing rules relevant to the governance of GCC’s two banking systems that can help to support the stability of the whole banking sector.

Empirical evaluation of structure-conduct-performance paradigm as applied to the Iranian Islamic banking system

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mahdi Ghaemi Asl ◽  
Muhammad Mahdi Rashidi ◽  
Alireza Ghorbani
Keyword(s):  
Market Structure ◽  
Market Share ◽  
Balance Sheet ◽  
Empirical Evaluation ◽  
Banking System ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Simple Regression Model ◽  
The Impact

Purpose This paper aims to investigate the impact of market structure and market share on the performance of the Islamic banks operating in the Iranian banking system based on the structure-conduct-performance (SCP) paradigm. Design/methodology/approach The Iranian Islamic banking system’s market structure is evaluated by using the econometrics method to test the validity of the traditional SCP paradigm. For this purpose, the authors estimate a simple regression model that is consisted of several independent variables, such as the market share, bank size, real gross domestic product, liquidity and Herfindahl-Hirschman index as a proxy variable for concentration and one dependent variable, namely, the profit as a proxy for performance. The panel data includes a data sample of 22 Islamic banks operating from 2006 to 2019. Data are extracted from the balance sheet of Islamic banks and the time-series database of the Central Bank of Iran and World Bank. Findings The study’s findings indicate that both concentration and market share have a positive impact on the performance of banks in the Iranian Islamic banking system. This result is contradicted with both traditional SCP and efficient structure hypotheses; however, it confirms the existence of oligopoly or cartel in the Iranian Islamic banking system that few banks try to gain the highest share of profit and maintain their market share by colluding with each other. This result is in contradiction with other research studies about the market structure in the Iranian banking system that claimed that banks in Iran operate under monopolistic competition. In addition, it shows that the privatization of some banks in Iran does not improve and help competition in the Iranian banking system. Originality/value This paper is a pioneer empirical study analyzing the market structure, concentration and collusion based on the SCP paradigm in Iranian Islamic banking. The results of the study support the existence of collusive behavior among the Islamic bank in Iran that is not aligned with Sharia. This study clearly shows the difference between ideal Islamic banking and Islamic banking in practice in Islamic countries. This clearly indicates that only prohibiting some operations like receiving interest, gambling and bearing excessive risk is not enough. In fact, the Islamic banking system should be based on the Sharia rule in all aspects and much more modification and study have to be done to achieve an appropriate Islamic banking system. These possible modifications to overcome the issues of cartel-like market structure and collusive behavior in the Iranian Islamic banking system include making the Iranian banking system more transparent, letting foreign banks enter the Iranian banking system and minimizing the government intervention in the Iranian banking system.

The roles of domestic and foreign Islamic banks in Malaysian monetary transmission

2014 ◽  
Vol 7 (2) ◽  
pp. 161-169 ◽  
Author(s):  
Fidlizan Muhammad ◽  
Asmak Ab Rahman ◽  
Ahmad Azam Sulaiman
Keyword(s):  
Monetary Policy ◽  
Banking System ◽  
Bank Lending ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Bank Lending Channel ◽  
Content Type ◽  
Lending Channel ◽  
Level Data ◽  
Loan Supply

Purpose – The aim of this paper is to empirically test the presence of the bank lending channel for the Islamic banking system in Malaysia. Design/methodology/approach – Distributional effects from monetary policy changes were analyzed by three bank characteristics such as size, liquidity and capital. Using the econometric model by Kashyap and Stein (1995), the implementation of a policy contraction leads to reduction in loan supply because some banks may not able to offset a reduction in deposits. The paper explores the response shown between domestic and foreign Islamic banks in Malaysia using bank-level data from 2005 to 2010. Findings – The empirical result indicates presence of the bank lending channel in the Islamic banking system in Malaysia, size and liquidity as sources of difference response of financing supply in domestic bank and capital for foreign Islamic bank and Islamic interbank rate as an efficient tool in conducting monetary policy especially in the Islamic banking system. Originality/value – The paper manages to explore the effectiveness of Islamic the monetary policy tools in the Islamic Banking system in Malaysia. Using Islamic interbank rate as a policy tool, it provides valuable view to policy makers, who are analyzing for efficiency of transmission channel.

scholarly journals Impact of Basel Accord on Banking System (Evidence from Islamic Banks of Pakistan)

2015 ◽  
Vol 1 (2) ◽  
pp. 1
Author(s):  
Muhammad Mehtab Azeem ◽  
Akin Marsap ◽  
Cigdem Ozari
Keyword(s):  
Banking System ◽  
Islamic Banking ◽  
Basel Iii ◽  
Islamic Banks ◽  
Basel Accord ◽  
Trade Off ◽  
Financial Anomalies ◽  
Conventional Banks ◽  
The Stability ◽  
The Impact

Banks and bank regulatory authorities are vital players for the stability of economy and financial system in potential way. Basel III and its related to capital’s requirement obligations have been effective useful tool for the banking system. Since, this is tough job for the bankers to maintain the liquidity for hedging the future risk but it also been expensive for bankers to keep the extra capital and become more liquid since this discourage the provision of loans but promote the credit ratings. However, it has become necessary to investigate the impact of Basel III on Islamic banking system and analyze the trade off. The study analyzes empirically on the (Financial) anomalies in term of three factors (i) Financial size (ii) Spread and (iii) Provisions for non performing financing. The study also discusses the impact of Basel III on Islamic banking performance if applicable, in context of trade off and impact on country’s economy. We can ask that Basel III framework is difficult to be consistent for conventional banks; we can also realize that either new regulation will be flexible for Islamic banks under Basel III while Islamic and Conventional banks are totally different. Further, we shall estimate if the Basel III is more or less important in Islamic banks of Pakistan than conventional banks. At the end, we shall see from theoretical framework either the impact of Basel III is important for Islamic banks if and only if Islamic banks adopt to follow Basel III regulations and analyzing the potential influence on conventional banks.

scholarly journals The association between intellectual capital and financial performance in the Islamic banking industry

2019 ◽  
Vol 13 (1) ◽  
pp. 75-93 ◽  
Author(s):  
A.A. Ousama ◽  
Helmi Hammami ◽  
Mustafa Abdulkarim
Keyword(s):  
Financial Performance ◽  
Intellectual Capital ◽  
Positive Impact ◽  
Value Added ◽  
Annual Reports ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Gcc Countries ◽  
The Impact

Purpose The purpose of this study is to empirically investigate the impact of intellectual capital (IC) on the financial performance of Islamic banks operating in the Gulf Cooperation Council (GCC) countries. Design/methodology/approach The study measures IC by the value added intellectual coefficient model. A regression analysis was used to assess the impact of IC on financial performance. The research sample consisted of Islamic banks operating in the GCC countries during the years 2011, 2012 and 2013. Data originated from the annual reports of Islamic banks. Findings The results support the thesis that IC has a positive impact on the financial performance of Islamic banks. Even though the average IC is lower than that reported in other studies, the positive effect on financial performance is obvious. The findings also show that human capital (HC) is higher than capital employed (CE) and structural capital (SC). The study reveals that SC has an insignificant impact on the financial performance of the Islamic banks compared to CE and HC. Practical implications The findings provide empirical evidence that IC affects the Islamic banks’ financial performance. It helps Islamic banks in the GCC countries to understand how to use their IC efficiently, especially SC as it is yet to be used efficiently. Also, the findings benefit the relevant authorities (e.g. legislators and central banks) who could use them to emphasise strategic policy reforms whenever required. Originality/value The current research adds to the empirical studies in the GCC countries as it views the region as a collective as opposed to individual countries. It also extends the IC and performance measurement literature of Islamic banks in the GCC countries. Moreover, the current study enriches the limited literature on IC in the context of Islamic banking.

THE ISLAMIC VS CONVENTIONAL BANKS: AN EVIDENCE ON THE ECONOMIC DEVELOPMENT

2021 ◽  
Vol 02 (01) ◽  
pp. 68-81
Author(s):  
Muhammad Saqib Khan ◽  
Shaheera Munir ◽  
Ammara Mujtaba
Keyword(s):  
Quantitative Research ◽  
Banking System ◽  
Value Added ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Banking Systems ◽  
Tax Shield ◽  
Gross Value Added ◽  
Conventional Banks ◽  
Bank System

This paper highlights how financial and conventional bank system contribute to economic growth. As the Islamic banking system is grounded on shariah’s laws and Usury/RIBA (interest) are prohibited in Islam so there will be no tax shield in this banking system and they have to pay more tax as compared to the conventional banking system. By analyzing their performance and using the gross value-added contribution of both banking systems was observed. Six banks are selected for this purpose of which 3 Islamic banks i.e. Dubai. It is quantitative research so different ratios are used to examine both banking system performance and gross value added to give us information that to what extend both banking systems are contributing to the economy. In an examination, it has been exposed that both banking systems are conducive much to economy as conventional banks are developed their infrastructure is bigger than Islamic banks where Islamic banks just start near past a few years back.

Does the tag “Islamic” help in customer satisfaction in dual banking sector?

2019 ◽  
Vol 10 (1) ◽  
pp. 138-149 ◽  
Author(s):  
Fayaz Ahmad Lone ◽  
Ulfat Rashid Bhat
Keyword(s):  
Customer Satisfaction ◽  
Banking Sector ◽  
Banking System ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Level Of Satisfaction ◽  
Alternative Approach ◽  
Future Strategy ◽  
Conventional Banks

Purpose The purpose of this paper is to find out the importance of the tag “Islamic” in the title of banks. This will help to determine the future strategy of Islamic banks, while expanding to the countries where Islamic banking is seen as a religious banking and not an as an alternative approach to the conventional banking. Design/methodology/approach Adopting convenience sampling, a total of 596 customers of both Islamic and conventional banks were surveyed from four regions of Saudi Arabia (Makkah, Madinah, Riyadh and Dammam) using a self-structured questionnaire on a five-point Likert scale. Findings The results concede that Islamic banks without the tag “Islamic” and conventional banks have same customer satisfaction. There are some factors other than the tag “Islamic” which are driving customers towards Islamic banking. Those factors include physical aspects of the bank, level of satisfaction with the services, dealing and attendance by the staff and safety and security of the bank. Besides, the application of fundamental principles of Islamic banking works as a key motivation for customer satisfaction with Islamic banking. Practical implications Applying the tag “Islamic” is not as important as implementing the principles of Islamic banking. Islamic banks can survive and compete well even without using the “Islamic” tag if they implement the prime principles of Islamic banking and work on improving the factors highlighted by this study. This study can prove to be helpful in the expansion of Islamic banking in the countries where religious banking is not generally preferred by customers. Originality/value This is the first study to find out the customer satisfaction in a dual banking system (comprising of conventional banks and Islamic banks that do not use the tag “Islamic”), thereby filling the existing gap in the Islamic banking literature.

The possibility of application of salam in Malaysian Islamic banking system

Humanomics ◽  
2011 ◽  
Vol 27 (2) ◽  
pp. 138-147 ◽  
Author(s):  
Aishath Muneeza ◽  
Nik Nurul Atiqah Nik Yusuf ◽  
Rusni Hassan
Keyword(s):  
Design Methodology ◽  
Banking System ◽  
Future Application ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Knowledge Based ◽  
Library Research ◽  
Islamic Financial Institutions ◽  
Pros And Cons

PurposeThis research aims to explore the theoretical nature of salam contract in depth, the extent of its use in the banking arena of Malaysia and to test the theoretical feasibility of its future application by the Islamic banks in Malaysia by suggesting an Islamic banking product structure based on salam contract.Design/methodology/approachThis is a legal exploratory study primarily focused on library research.FindingsSalam contract is more susceptible to risks than the rest of the Islamic commercial contracts used by the Islamic banks in Malaysia and none of the Islamic banks in the country utilize this type of contract as a mode of financing. However, the research indicates that a feasible banking product based on salam contract could be formulated to help poor farmers in the country. To prove this a new model product based on salam contract to help farmers is created by the authors and the pros and cons of the product with the risk mitigating ways are explored. It is found that theoretically, this product is workable.Originality/valueThis research will complement the knowledge based on practical applicability of salam and is targeted to the Islamic financial Institutions in Malaysia, who are the prospective beneficiaries.

Layers of misconceptions about Islamic banking

2019 ◽  
Vol 10 (3) ◽  
pp. 874-892 ◽  
Author(s):  
Malik Shahzad Shabbir ◽  
Awais Rehman
Keyword(s):  
Data Analysis ◽  
Financial Institutions ◽  
Design Methodology ◽  
Banking System ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Significant Difference ◽  
Challenges And Opportunities ◽  
Islamic Financial Institutions

Purpose This paper aims to identify some important misconceptions about Islamic banks, which impact investor’s portfolio in term of threats, challenges and opportunities. This paper is trying to attempt to present five different layers of misconceptions regarding investor portfolio. Design/methodology/approach This paper distributed 132 questionnaires among investors of Islamic financial institutions and multiple regression of least significant difference (LSD) method implied for data analysis. Findings The results of this paper show that two variables, such as opportunity and challenge, out of three are positively significant and the remaining one variable, threat, is insignificant regarding investor portfolio. Originality/value This paper is the first ever attempt in its nature to identify the different misconceptions about Islamic banking system and its impact on investor portfolio.

Does intention influence the financial literacy of depositors of Islamic banking? A case of Malaysia

2020 ◽  
Vol 47 (5) ◽  
pp. 675-690
Author(s):  
Yuvaraj Ganesan ◽  
Anwar Bin Allah Pitchay ◽  
Mohd Aliff Mohd Nasser
Keyword(s):  
Peer Review ◽  
Structural Equation ◽  
Banking System ◽  
Cultural Bias ◽  
Basic Knowledge ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Financial Industry ◽  
Content Type ◽  
Islamic Bank

PurposeSince the establishment of Islamic banks in Malaysia since the 1980s, the banking system has undergone rampant development within the financial industry. It has resulted in a positive competitive challenge for the conventional banks and able to attract not just the Muslim customers, but also those non-Muslim customers. At the same time, understanding the customers' knowledge of Islamic banking products is an interesting issue to explore. This issue is raised because the Islamic bank products are often packaged using Arabic terms, even though it is marketed in non-Arabic countries like Malaysia. Therefore, this study aims to examine the factors that influence the intention of the Islamic banking customers as the result of relying on some information produced by Malaysian Islamic banks.Design/methodology/approachThis study is conducted using the existing underpinning theory of planned behaviour (TPB). A total of 300 questionnaires were analysed using the structural equation modelling (SEM).FindingsThe results indicated that perceived behavioural control, attitude and subjective norms of the Islamic banking depositors are positively influenced by the intention of the depositors to learn about Islamic banking.Research limitations/implicationsOne of the main issues faced in this study is the result cannot be generalised. It is not possible to know based on the collected data if the sample is representative, other than the fact that all of the respondents are Islamic bank depositors. Nevertheless, it can still be a catalyst for further research as a link to existing findings in the area. There might be a bias on the understanding of the respondents about Islamic banking. This is due to the fact that Malaysia is a multi-racial population. Malay people might have a better understanding and basic knowledge about Islamic banking than the Chinese, Indians and other races. This cultural bias could be overcome in future studies by identifying respondents who have experiences in dealing with Islamic banking.Originality/valueThis study provides interesting insights of the Malaysian banking industry in terms of the multi-racial customers' intention to learn about Islamic banking, which is scarcely discussed in the extant literature.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-01-2019-0011.

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