scholarly journals PROCYCLICALITY AND BANK LENDING BEHAVIOR IN INDONESIA: THE CASE OF DUAL BANKING SYSTEM

2018 ◽  
Vol 4 (1) ◽  
pp. 23-38 ◽  
Author(s):  
Muhammad Rizky Prima Sakti ◽  
Mohamed Zulkhibri
Keyword(s):  
Business Cycle ◽  
Banking System ◽  
Bank Lending ◽  
Medium Size ◽  
Islamic Banks ◽  
Lending Channel ◽  
The Business Cycle ◽  
Financing Behavior ◽  
Conventional Banks ◽  
Lending Behavior

It is widely suggested in the literature that procyclicality of bank lending behavior may lead to financial instability. This study examines bank-lending channel over the business cycle for Indonesian dual banking system by ascertaining to what extent Islamic banks have a role in the credit smoothing. In this context, we utilize Indonesian dual banking system unbalanced panel data for the period 2001-2015. By employing two-step dynamic GMM estimators, the study shows that the bank lending behaviour are procyclical. However, when we categorize the lending behaviour into conventional and Islamic banks, the cyclicality of bank lending affects only for conventional banks. As for the Islamic banks, the business cycle does not affect their financing decision. Specifically, large Islamic banks are more counter-cyclical in their financing behavior than small and medium size Islamic banks. Robustness tests using different measures of loans and model specifications confirm the results that Islamic bank is more stable and less procyclical in the case of Indonesia banking system.

scholarly journals THE BANK LENDING CHANNEL OF MONETARY POLICY TRANSMISSION IN A DUAL BANKING SYSTEM

2017 ◽  
Vol 2 (2) ◽  
pp. 193-220
Author(s):  
Mansor H. Ibrahim
Keyword(s):  
Monetary Policy ◽  
Banking System ◽  
Bank Lending ◽  
Jel Classification ◽  
Islamic Banks ◽  
Bank Lending Channel ◽  
Data Set ◽  
Lending Channel ◽  
Conventional Banks ◽  
The Impact

This paper examines the impact of monetary policy on bank lending in a dual banking system, i.e. Malaysia. Making use of an unbalanced panel data set of 38 Islamic and conventional banks covering mostly 2001-2014, we find evidence that variations in monetary policy affect lending growth of Islamic banks and, to some extent, conventional banks. The results further reveal that, in conformity with studies using aggregate Islamic financing data, the Islamic financing growth reacts more strongly to monetary policy changes.  Moreover, we find no marked difference between full-fledged Islamic banks and Islamic bank subsidiaries in their responses to monetary policy. While we also document some evidence indicating the significant relations between bank-specific variables and lending growth, the bank-specific variables do not seem to have any role in impacting the potency of the bank lending channel.  Finally, we find that lending growth is directly related to economic growth, suggesting procyclicality of bank lending/financing in Malaysia. These results have important implications for effective implementation of monetary policy and further development of Islamic banks in Malaysia.    Key words:   Bank lending channel, Monetary policy, Dual banking system, Malaysia JEL Classification: E53, G21, C23

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 Ownership Structure, Bank Capital and Bank Lending/Financing Behaviour in a Dual Banking System

2019 ◽  
Vol 8 (5C) ◽  
pp. 233-237
Keyword(s):  
Financial Crisis ◽  
Ownership Structure ◽  
Risk Sharing ◽  
Banking System ◽  
Bank Lending ◽  
Islamic Banks ◽  
Bank Capital ◽  
Credit Supply ◽  
Conventional Banks ◽  
The Stability

Credit supply in the market is crucial in order to ensure sustainable real production can survive in the market as well as to strengthen economic activity. Therefore, it is not surprising that when the financial crisis occurred in 2008 to 2009, policymakers continued to use a variety of mechanisms such that banks could continue to maintain their credit supply. Nevertheless, risk sharing based on the business model that was adopted by Islamic banks displayed different behaviour from the conventional banks. Based on prior studies, the stability of financing growth by Islamic banks as compared to lending growth of conventional banks showed the model used by Islamic banks was more capable of effectively withstanding the financial crisis. Therefore, research into the quality of lending and financing is important to understand the growth of bank lending and financing behaviour in the market. Hence, the main objective of this study is to review the effect of ownership structure, bank capital and bank lending including financing behaviour in Islamic versus conventional banks. In addition, this study proposes a conceptual framework to further comprehend the decisions made in undertaking ownership structure, bank capital and lending in the dual banking system.

scholarly journals Bank lending channel in a dual banking system: Why are Islamic banks so responsive?

World Economy ◽  
2017 ◽  
Vol 41 (3) ◽  
pp. 674-698 ◽  
Author(s):  
Ahmet F. Aysan ◽  
Mustafa Disli ◽  
Huseyin Ozturk
Keyword(s):  
Banking System ◽  
Bank Lending ◽  
Islamic Banks ◽  
Bank Lending Channel ◽  
Lending Channel

scholarly journals BANK LENDING BEHAVIOR: EVIDENCE FROM MALAYSIAN DUAL BANKING SYSTEM

2021 ◽  
Vol 3 (8) ◽  
pp. 65-75
Author(s):  
Salwani Affandi ◽  
Anis Izzati Ja’afar ◽  
Fathiyah Ismail ◽  
Nabilah Abdul Shukur
Keyword(s):  
Banking System ◽  
Bank Lending ◽  
External Factors ◽  
Least Square ◽  
Islamic Banks ◽  
Substantial Impact ◽  
Ordinary Least Square ◽  
Strongly Connected ◽  
Internal And External Factors ◽  
Lending Behavior

This study investigates the internal and external factors that influence bank lending behaviors in Malaysian’s dual banking system. The final regression of 24 commercial and 15 Islamic banks using the pooled ordinary least square (POLS) method revealed that the size of the bank proxies by the logarithm of total assets as the most significant factor influencing bank lending behavior in Malaysia from 2010 to 2018. This suggests that larger banks are more diversified and have a larger pool of funds to be loaned out. Because banks rely on deposits to issue loans, the deposits received by the bank have a substantial impact on bank lending. The greater the number of deposits obtained; the more bank lending activities will occur. The data also demonstrated that commercial and Islamic bank lending behavior in Malaysia is strongly connected with deposit volume (DEPO), GDP, and bank size (SIZE).

scholarly journals EVALUATION OF DUAL BANKING SYSTEM IN BANKING IN INDONESIA

2020 ◽  
Vol 11 (2) ◽  
Author(s):  
Amanatun Nisfah Nurun Nikmah ◽  
Tulus Suryanto ◽  
Surono Surono
Keyword(s):  
Financial Stability ◽  
Banking System ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Common Goal ◽  
The Face ◽  
Capital Access ◽  
Conventional Banks ◽  
Banking Institution ◽  
Negative Factors

Evaluation of Dual Banking System in Indonesia. Dual Banking System is the application of two banking systems in one banking institution, namely conventional banking and Islamic banking. Indonesia can optimize the dual banking system through strength share and weakness cover, namely Islamic banks are generally superior in terms of a more stable system in the face of market changes but have deficiencies in infrastructure, whereas conventional banks have large market and capital access and more infrastructure complete, but very vulnerable to crises due to the negative factors of economic integration which are already very strong. The superiority of the dual banking system concept is seen in two separate systems that operationally do not affect each other, but have one common goal, namely financial stability that supports economic growth. So, to achieve this goal the two systems can work together in external factors such as access to capital, infrastructure, supervision or clearing systems that can help interbank liquidity.

Credit risk in dual banking systems: does competition matter? Empirical evidence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohsin Ali ◽  
Mudeer Ahmed Khattak ◽  
Nafis Alam
Keyword(s):  
Credit Risk ◽  
Banking System ◽  
Islamic Banks ◽  
Content Type ◽  
Panel Data Estimation ◽  
System A ◽  
Size Groups ◽  
Conventional Banks ◽  
Fierce Competition ◽  
Data Estimation

PurposeThe study of credit risk has been of the utmost importance when it comes to measuring the soundness and stability of the banking system. Due to the growing importance of Islamic banking system, a fierce competition between Islamic and conventional banks have started to emerge which in turn is impacting credit riskiness of both banking system.Design/methodology/approachUsing the system GMM technique on 283 conventional banks and 60 Islamic banks for the period of 2006–2017, this paper explores the important impact of size and competition on the credit risk in 15 dual banking economies.FindingsThe authors found that as bank competition increases credit risk seems to be reduced. On the size effect, the authors found that big Islamic banks are less risky than big conventional banks whereas small Islamic banks are riskier than small conventional banks. The results are robust for different panel data estimation models and sub-samples of different size groups. The findings of this paper provide important insights into the competition-credit risk nexus in the dual banking system.Originality/valueThe paper is specifically focused on credit risk in dual banking environment and tries to fill the gap in the literature by studying (1) do the Islamic and conventional banks exhibit a different level of credit risk; (2) does competition in the banking system impact the credit risk of Islamic and conventional banks and finally (3) do the big and small banks exhibit similar levels of credit risk.

scholarly journals Influence of economic freedom and its subcomponents on risk-taking behavior

2019 ◽  
Vol 12 (4) ◽  
pp. 335-356 ◽  
Author(s):  
Rafik Harkati ◽  
Syed Musa Alhabshi ◽  
Salina Kassim
Keyword(s):  
Risk Taking ◽  
Economic Freedom ◽  
Banking Sector ◽  
Banking System ◽  
Islamic Banks ◽  
Content Type ◽  
Economic Freedom Index ◽  
Risk Taking Behavior ◽  
The Government ◽  
Conventional Banks

Purpose The purpose of this paper is to investigate the influence of economic freedom and six relevant subcomponents of it on the risk-taking behavior of banks in the Malaysian dual banking system. It also aims to make a comparative analysis between Islamic and conventional banks operating in this dual banking sector. Moreover, the study is an effort to enrich the existing literature by presenting empirical evidence on the argument that the risk-taking behavior of the two types of banks is indistinguishable given that they operate in the same regulatory environment. Design/methodology/approach Secondary data of all banks operating in the Malaysian banking sector are collected from FitchConnect database, in addition to the economic freedom index from Foundation Heritage for the period 2011–2017. Generalized least squares technique is employed to estimate the influence of economic freedom and the six relevant subcomponents of it on the risk-taking behavior of banks. Findings The level of economic freedom influenced risk-taking behavior within the banking sector as a whole, conventional and Islamic banking sectors negatively during the study period (2011–2017). Risk-taking behavior of conventional and Islamic banks is similar. However, conventional banks turn to be less influenced by economic freedom level as compared to Islamic banks. Practical implications The government and regulators may benefit from the results by rethinking and setting the best economic freedom index that better serves the stability of the banking system, and lessens banks’ risk-taking inclination. Originality/value To the present time, this paper is thought to be of a significant contribution. Given the argument that Islamic and conventional banks behave in the same way. This is one of the first attempts to address this issue in light of the influence of economic freedom and six subcomponents of it on the risk-taking behavior of banks operating in a dual banking system.

scholarly journals The bank lending channel in the Malaysian Islamic and conventional banking system

2020 ◽  
Vol 45 ◽  
pp. 100478 ◽  
Author(s):  
Guglielmo Maria Caporale ◽  
Abdurrahman Nazif Çatık ◽  
Mohamad Husam Helmi ◽  
Faek Menla Ali ◽  
Mohammad Tajik
Keyword(s):  
Banking System ◽  
Bank Lending ◽  
Bank Lending Channel ◽  
Lending Channel
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