scholarly journals Bank Competition–Stability Relations in Pakistan: A Comparison between Islamic and Conventional Banks

2021 ◽  
Vol 22 (2) ◽  
pp. 532-545
Author(s):  
M. Kabir Hassan ◽  
Muhammad Shahzad Ijaz ◽  
Mushtaq Hussain Khan
Keyword(s):  
Market Power ◽  
Financial Stability ◽  
Banking Sector ◽  
Generalized Least Squares ◽  
Islamic Banks ◽  
Bank Competition ◽  
Least Squares Regression ◽  
Using Data ◽  
Conventional Banks ◽  
The Stability

This study comparatively analyses the financial stability of Islamic and conventional banks in Pakistan. Using data of 29 conventional and 9 Islamic banks over 18 years, the study first estimates bank competition and stability using Lerner index and Z-Score, respectively. Generalized least squares regression is used and the coefficients are estimated by using random-effects estimator. Results of the mean comparison show that Islamic banks carry more market power (less competition) and are more stable compared to their conventional counterparts. Results of a panel regression show that competition positively affects the stability of the banking sector and this effect is higher for Islamic banks due to their market power. Results also show that bank stability in Pakistan was reduced during global crisis period; however, presence of Islamic banks contributes to the stability even during crisis. Finally, this study supports the competition-stability hypothesis for Islamic banking in Pakistan. Recommendations are given at the end.

COMPETITION-STABILITY RELATIONSHIP IN DUAL BANKING SYSTEMS: EVIDENCE FROM EFFICIENCY-ADJUSTED MARKET POWER

2021 ◽  
pp. 1-24
Author(s):  
MUDEER AHMED KHATTAK ◽  
OMAR ALAEDDIN ◽  
MOUTAZ ABOJEIB
Keyword(s):  
Market Power ◽  
Financial Stability ◽  
Banking Sector ◽  
Market Competition ◽  
Policy Implications ◽  
Islamic Banks ◽  
Banking Competition ◽  
Precise Measure ◽  
Conventional Banks ◽  
The Impact

This research attempts to explore the impact of banking competition on financial stability employing a more precise measure of market power. It was found that Islamic banks are less stable and are enjoying lower market power. The analysis shows that higher market competition makes the banking sector vulnerable to defaults, supporting the “competition-fragility view”. This research finds no difference in the relationship for Islamic banks indicates that Islamic banks might be involved in traditional banking activities as conventional banks. The results are consistent and robust to different estimation approaches and subsamples. This research carries regulatory and policy implications.

Market-power, stability and risk-taking: an analysis surrounding the riba-free banking

2019 ◽  
Vol 18 (1) ◽  
pp. 2-24 ◽  
Author(s):  
Awatef Louhichi ◽  
Salma Louati ◽  
Younes Boujelbene
Keyword(s):  
Market Power ◽  
Financial Stability ◽  
Banking Sector ◽  
System Analysis ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Policy Debate ◽  
Method Of Moment ◽  
Content Type ◽  
Conventional Banks

Purpose Analysis of the trade-off between competition and financial stability has been at the center of academic and policy debate for over two decades and especially since the 2007-2008 global financial crises. This study aims to provide particular attention to the Islamic banking system which principally involves with the riba-free instruments as compared to the conventional interest-based system. The results show that an increase in the concentration in the conventional banking sector can lead to the deterioration of stability through the increased prices. For Islamic banks, an increase of the market power can positively affect the banking stability. Design/methodology/approach Two complementary approaches, namely, one-step generalized method of moment (GMM) system analysis and panel vector autoregressive (PVAR) framework, were applied. Findings The results show the same effect of Islamic and conventional banks’ market power on banking soundness; yet, a different effect is displayed with non-performing loans (NPLs). In particular, the “competition–fragility” assumption for both banking industries is supported when considering z-score as the dependent variable. Including NPLs, this postulation is still approved for conventional banks; however, the “competition–stability” postulation is supported for Islamic banks. Originality/value The existent literature was scarcely interested in exploring the concept of competitivity in the context of Islamic banking sector as compared to the conventional one by applying two complementary approaches, namely, GMM and PVAR. This later allows to test the effect and the feedback effect of the competition and stability concepts.

scholarly journals A Study of the Determinants of Cost and Revenue Efficiency in the Context of Islamic and Conventional Banks: The Case of Malaysia from 2006 to 2012

2016 ◽  
Vol 8 (7) ◽  
pp. 258
Author(s):  
Mohamed Ghroubi ◽  
Ezzeddine Abaoub
Keyword(s):  
Banking Sector ◽  
Generalized Least Squares ◽  
Decision Makers ◽  
Second Step ◽  
Islamic Banks ◽  
Regulatory Capital ◽  
Political Decision ◽  
Independent Variables ◽  
Conventional Banks ◽  
Revenue Efficiency

<p>In this paper, we examine the determinants of cost and revenue efficiency of Malaysian banks over the period 2006-2012. Three steps are undertaken to study a sample of 17 Islamic banks (IBs) and 20 conventional banks (CBs). In the first step, we assessed the competitiveness of the Malaysian banking sector. After solving the multicollinearity problem, as a second step, we selected three sets of independent variables: bank-specific, industry-specific and macroeconomic variables. In the last step, we estimated the efficiency models with the Feasible Generalized Least Squares (FGLS) method. The obtained results highlighted the importance of regulatory capital and size. As for the effect of competitiveness, it is found to be statistically significant only for revenue efficiency. These results may be useful to political decision-makers and regulatory authorities.</p>

scholarly journals Panel modeling of z-score: evidence from Islamic and conventional Saudi banks

2019 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hassan Belkacem Ghassan ◽  
Abdelkrim Ahmed Guendouz
Keyword(s):  
Financial Stability ◽  
Banking Sector ◽  
Stability Index ◽  
Z Score ◽  
Strong Concentration ◽  
Content Type ◽  
Quarterly Data ◽  
Annual Frequency ◽  
Conventional Banks ◽  
The Stability

Purpose This paper aims to measure the stability extent of the banking sector in Saudi Arabia, including Islamic and conventional banks (CBs), using quarterly data. Design/methodology/approach The paper uses seemingly unrelated regressions to estimate the determinants of the z-score. Findings The panel data model shows that Islamic banks (IBs) reduce the financial stability index relatively; meanwhile, they contribute efficiently to enhance the financial stability through the diversification of their assets. The Saudi banking sector exhibits strong concentration affecting the financial stability negatively. Research limitations/implications The paper’s topic can be extended to cover the recent period. Practical implications The limited presence of IBs in the Saudi banking sector jeopardizes any effort to improve the financial stability. Social implications By attracting more clients, IBs would contribute more to the financial stability in the Saudi economy. Also, the monetary authority has to expand the share of IBs in the financial system at least 50-50 compared to CBs. Originality/value The z-score is mostly analyzed with yearly data; in this paper we use quarterly data to describe at infra-annual frequency the variability of the z-score index. Also, we consider in detail the statistical properties of the banks’ data.

Efficiency assessment of banking sector in Yemen using data envelopment window analysis

2015 ◽  
Vol 22 (6) ◽  
pp. 1115-1140 ◽  
Author(s):  
Fekri Ali Shawtari ◽  
Mohamed Ariff ◽  
Shaikh Hamzah Abdul Razak
Keyword(s):  
Panel Data ◽  
Banking Sector ◽  
Panel Data Analysis ◽  
Data Envelopment ◽  
Content Type ◽  
Window Analysis ◽  
Loan Financing ◽  
Using Data ◽  
Conventional Banks ◽  
The Stability

Purpose – The purpose of this paper is to examine the banking industry’s efficiency using the case of Yemen. Design/methodology/approach – The paper utilises two-stage analysis to evaluate the efficiency adopting Data Envelopment Window Analysis (DEWA) in the first stage for the period 1996-2011. Furthermore, the paper addresses, in two-dimensional matrix, the stability and efficiency of the banking sector in order to assess their ability for survival. In the second stage, panel data analysis is applied to regress a set of bank-specific and macro-economic variables on the efficiency of the banking sector in Yemen in a comparative fashion between Islamic and conventional banks. Findings – The findings of the investigation indicate that the Yemeni banking industry in general was on a declining efficiency’s trend with increased instability during the later period of the investigation. In addition, the study shows that most conventional banks were relatively stable, though inefficient, while Islamic banks were more efficient over the time. The results of panel data regression further suggest that efficiency is related to a number of determinants. Loan/financing, and profitability are the common key determinants of efficiency for both Islamic and conventional banks. However, other determinants have impacted differently for Islamic and conventional banks, which could reflect the uniqueness of their operation and structure. Research limitations/implications – The present study provides a basis for the regulators and bankers to assess the viability of the banking sector and proposes policies to restructure the industry in order to enhance the performance of the whole industry. Originality/value – The paper presents new empirical findings on the efficiency of Islamic and conventional banks in Yemen.

scholarly journals Does Financial Instability of Conventional Banks Affect Financial Stability of Islamic Banks in GCC Countries?

2019 ◽  
Vol 11 (1) ◽  
pp. 361
Author(s):  
Hamid Abdulkhaleq Hasan Al-Wesabi ◽  
Rosylin Mohammed Yusof
Keyword(s):  
Financial Stability ◽  
Time Series Data ◽  
Panel Cointegration ◽  
Generalized Least Squares ◽  
Causal Link ◽  
Series Data ◽  
Islamic Banks ◽  
Gcc Countries ◽  
Long Run ◽  
Conventional Banks

Purpose: The main purpose of this paper is to investigate the relationship between financial stability in Islamic banks and financial stability and soundness in conventional banks for five GCC countries.Design/methodology/approach: By using time series data, this study employs Pedroni’s panel cointegration to test the long-run relationship between financial stability of Islamic banks and financial stability of conventional banks in GCC countries during the period of (2000-2017). Besides, the study also employs Granger causality to test the causal link between stability of two types of banks (Islamic and Conventional). As well as employing Generalized Least Squares (GLS) to examine the effects between independent variables which are financial stability of conventional banks and their profitability, impact of period of financial crisis (2008/2009), oil prices fluctuations, banking concentration and financial sector development and financial stability of Islamic banks (as the dependent variable).Findings: The findings of this research suggest that there is a long-run, significant and positive relationship between the financial stability of conventional banks and its Islamic counterpart. At the same time, the financial stability of conventional banks is found to Granger caused the stability of Islamic banks.Originality/value: The results of the study contribute towards understanding the determinants of the financial stability of both Islamic banks and conventional banks and how they affect each other. This is important for policy ramifications by the Central Banks in GCC in terms of treating both types of banks differently to mitigate against future financial crises.

scholarly journals The Efficiency of Islamic Banks and Conventional Banks in Indonesia Using Data Envelopment Analysis Approach

2021 ◽  
Vol 58 (1) ◽  
pp. 375-381
Author(s):  
Retno Fitrianti, Sri Undai Nurbayani
Keyword(s):  
Data Envelopment Analysis ◽  
Commercial Bank ◽  
Commercial Banks ◽  
Banking Sector ◽  
Financial Institution ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Sample Technique ◽  
Using Data ◽  
Conventional Banks

Banking sector mediation is related to efficiency in economic performance. As a financial institution, banks need to maintain their performance in order to operate optimally, one factor that must be considered is efficiency in performance. This research aimed to analyze the efficiency of Islamic Banks and Conventional Commercial Bank in Indonesia. Using a purposive sample technique for two Islamic banks and two commercial banks. Fixed assets, deposits, and other operating expenses as input variablesused, while credit as output variable.  Using Data Envelopment Analysis to calculate the efficiency of banking. The results show that all Sharia Commercial Bank samples reached efficiency level 1 was efficient. Besides, the sample of conventional commercial banks used in this study is not all efficient. This is due to one of the sample banks having an efficiency level below one, which is 0.644. It means that conventional bank groups are inefficient.

scholarly journals FINANCIAL STABILITY OF ISLAMIC AND CONVENTIONAL BANKS IN BANGLADESH: REVISITING STABILITY MEASURES AND ANALYZING STABILITY BEHAVIOR

2018 ◽  
Vol 3 (2) ◽  
pp. 293-314
Author(s):  
Md Enayet Hossain ◽  
Mahmood Osman Imam
Keyword(s):  
Financial Stability ◽  
Panel Data Analysis ◽  
Capital Adequacy ◽  
Islamic Banks ◽  
Z Score ◽  
Panel Regressions ◽  
Capital Adequacy Ratio ◽  
Z Scores ◽  
Conventional Banks ◽  
The Stability

This study intends to assess the relative financial stability of Islamic banks in Bangladesh using three different Z-Scores as financial stability measures, based on a sample of 29 listed commercial banks (23 conventional and 6 Islamic) in Bangladesh over the period 2005-2016. Apart from the existing measure of financial stability, Z-Score, the paper contributes to the literature by developing an alternative Z-Score based on bank’s loan portfolio infection ratio. We first use pair-wise comparison and find that Islamic banks are financially more stable in two stability measures i.e. Z-Score (based on Capital Adequacy Ratio) and Z-Score (based on Infection Ratio). We then perform static (random effects) and dynamic (GMM) panel data analysis. By controlling for bank-specific, industry-specific and macroeconomic variables in the regressions, we find that Islamic banks are financially more stable in 2 panel regressions of Z-Score (based on Infection Ratio). We also find that the presence of Islamic banks increases the stability of all banks in the system including their conventional peers.

scholarly journals Basel Compliance and Financial Stability: Evidence from Islamic Banks

2020 ◽  
Author(s):  
Mohammad Bitar ◽  
Sami Ben Naceur ◽  
Rym Ayadi ◽  
Thomas Walker
Keyword(s):  
Financial Services ◽  
Financial Stability ◽  
Financial System ◽  
Islamic Banks ◽  
Z Score ◽  
Capital Ratios ◽  
Conventional Banks ◽  
The Stability ◽  
Global Financial System ◽  
Positive Effect

Abstract We find that compliance with the Basel Core Principles (BCPs) has a strong positive effect on the stability of conventional banks, and a positive but less pronounced effect on the stability of Islamic banks. We also find that the main impact of compliance is an increase in capital ratios, whereas other components of the Z-score are negatively affected. This reflects the desire of banks to be more closely integrated into the global financial system by holding higher capital ratios. The findings also justify the 2015 decision of the Islamic Financial Services Board to publish similar principles for Islamic banks.

Capital Regulation and Market Competition in the MENA Region: Policy Implications for Banking Sector Stability During COVID-19 Pandemic

2021 ◽  
pp. 097215092110644
Author(s):  
Miroslav Mateev ◽  
Syed Moudud-Ul-Huq ◽  
Tarek Nasr
Keyword(s):  
Credit Risk ◽  
Market Power ◽  
Banking Sector ◽  
Market Competition ◽  
Capital Requirements ◽  
Capital Regulation ◽  
Islamic Banks ◽  
Mena Region ◽  
Conventional Banks ◽  
The Relationship

This article investigates the impact of capital requirements and market competition on the stability of financial institutions in the Middle East and North African (MENA) region. We test the hypothesis that capital requirements significantly affect the risk behaviour of both Islamic and conventional banks in the MENA region. We also investigate the moderating effect of market power and concentration on the relationship between capital regulation and bank risk. We find that capital ratio has a strong positive impact on conventional banks’ credit risk, whereas this effect is insignificant in the sample of Islamic banks. Our analysis indicates that, for the conventional banking sector, the increase in the capitalization level is negatively linked to bank credit risk only when banks’ level of market power is high. Regarding the Islamic banks’ behaviour, we find that the relationship between capital and credit risk is weakly moderated by banking competition. This means that Islamic banks are less sensitive to the market’s competitive conditions in the MENA countries, as they still apply their theoretical models, based on prohibition of interest. Our findings inform regulatory authorities concerned with improving the banking sector’s financial stability in the MENA region to strengthen their policies and force banks to better align with regulatory capital requirements during the COVID-19 pandemic.

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