scholarly journals Sustainable Banking, Market Power, and Efficiency: Effects on Banks’ Profitability and Risk

2021 ◽  
Vol 13 (3) ◽  
pp. 1298
Author(s):  
Begoña Torre Olmo ◽  
María Cantero Saiz ◽  
Sergio Sanfilippo Azofra
Keyword(s):  
Market Power ◽  
Banking Sector ◽  
Scale Efficiency ◽  
New Paradigm ◽  
Bank Profitability ◽  
Insolvency Risk ◽  
Banking Market ◽  
Conventional Banks ◽  
Efficiency Effects ◽  
Term Performance

The financial crisis seriously damaged the reputation of the banking sector, as well as its profitability and risk of insolvency, which led many banks to adopt a sustainable approach aimed at balancing long-term goals with short-term performance pressures. This article analyses how sustainable banking practices affect the profitability and the insolvency risk of banks. Moreover, we examine how sustainable strategies determine the effects of market power and efficiency on bank profitability. We used a two-step System-GMM to analyze an unbalanced panel of 1236 banks from 48 countries over the period 2015–2019. We found that sustainable banking practices increased profitability, and market power was an important determinant of profitability among conventional banks, but not among sustainable banks. Higher levels of cost scale efficiency led to greater profitability for both sustainable and conventional banks. However, there was no significant relationship between sustainable banking and insolvency risk. These results indicate that the traditional determinants of bank profitability are not relevant in explaining the superior profits of sustainable banks, which suggests the emergence of a new paradigm related to sustainability among the drivers of bank profitability.

scholarly journals MARKET POWER AND EFFICIENCY OF ISLAMIC BANKING AND CONVENTIONAL BANKING IN INDONESIA

2018 ◽  
Vol 6 (2) ◽  
pp. 131
Author(s):  
Chajar Matari Fath Mala ◽  
Ahmad Rodoni ◽  
Bahrul Yaman
Keyword(s):  
Market Power ◽  
Scale Efficiency ◽  
Islamic Banking ◽  
Data Envelopment ◽  
Islamic Banks ◽  
Economic Community ◽  
Banking Market ◽  
Asean Economic Community ◽  
Conventional Banks ◽  
Conventional And Islamic Banks

ASEAN Economic Community (AEC) of banking industry requires both Islamic and conventional banking to improve their efficiency because the competition in banking market industry will be more intense. Therefore, this study aims to identify the type of hyphotesis of industrial organization which exists in Islamic and conventional banks in order to investigate their readiness for AEC. The research sampling consists of 10 Islamic banks and 10 conventional banks from January 2009 to December 2016. To measure x-efficiency and scale efficiency, this research uses Data Envelopment Analysis (DEA). Meanwhile, the concentration is measured by Lerner index. The hypothesis is tested by using panel regression. The result shows SCP (Structure-Conduct-Performance) hypothesis is closely applied to Islamic and conventional banks because market concentration significantly influences profitability. RMP (Relative Market Power) hypothesis is also closely applied to Islamic and conventional banking, this indicates Indonesian banking has market power in determining prices and this condition makes the profit higher. RES (Relative Efficiency Structure) and SES (Scale Efficiency Structure) hypothesis do not exist in both conventional and Islamic banks because x-efficiency and scale efficiency do not affect profitability, concentration, and  market share simultaneously. Market power and efficiency researches are commonly conducted in conventional banking, however there are only a few research in Islamic banking area. The novelty of this study is the comparison between conventional and Islamic banking in the term of market structure and efficiency.

Assessing the bank profitability in the MENA region

2014 ◽  
Vol 7 (3) ◽  
pp. 305-332 ◽  
Author(s):  
Rim Ben Selma Mokni ◽  
Houssem Rachdi
Keyword(s):  
Method Of Moments ◽  
North Africa ◽  
Banking Sector ◽  
Middle Eastern ◽  
Generalized Method Of Moments ◽  
Mena Region ◽  
Bank Profitability ◽  
Content Type ◽  
Conventional Banks ◽  
Econometric Technique

Purpose – Which of the banking stream is relatively more profitable in Middle Eastern and North Africa (MENA) region? Design/methodology/approach – The empirical study covers a sample of 15 conventional and 15 Islamic banks for the period 2002-2009.The authors estimate models using the generalized method of moments in system, of Blundell and Bond (1998). They exploit an up-to-date econometric technique which takes into consideration the issue of endogeneity of regressors to evaluate the comparative profitability of Islamic and conventional banks in the MENA region. Findings – Empirical analysis results show that the determinants’ significance varies between Islamic and conventional banks. Profitability seems to be quite persistent in the MENA region reflecting a higher degree of government intervention and may signal barriers to competition. Originality/value – The main interest is to develop a comprehensive model that integrates macroeconomic, industry-specific and bank-specific determinants. The paper makes comparison of the performance between two different banking systems in the MENA region. The authors consider a variable crisis to gain additional insights into the impacts of the financial crisis on MENA banking sector.

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.

scholarly journals Structure, market power, and profitability: evidence from the banking sector in Latin America

2021 ◽  
Vol 32 (85) ◽  
pp. 126-142
Author(s):  
Cristiano Hordones ◽  
Antonio Zoratto Sanvicente
Keyword(s):  
Latin America ◽  
Interest Rates ◽  
Market Structure ◽  
Market Power ◽  
Banking Sector ◽  
Banking Industry ◽  
Scientific Basis ◽  
Performance Model ◽  
Panel Data Regression ◽  
Banking Market

ABSTRACT The aim of this paper is to evaluate the influence of market structure on the competition between banks and to determine whether competition affects their profitability in different countries in Latin America. The study also seeks to compare, between 16 countries in the continent, the levels of concentration, competition, and profitability of the respective banking sectors. This article fills the research gap regarding the structure and market power of banks in emerging countries, by comparing Brazil with the other countries in the continent. The topic is extremely important at a time of debate about the high interest rates in Brazil, the market structure observed, and the alleged effect of this on the high levels of spread between lending and borrowing rates. The research provides evidence for the debate regarding the structure of the banking industry. To evaluate competition, the Panzar-Rosse model was used. Concentration was measured by the Herfindahl-Hirschman index and CR5 ratio. To verify the link between the variables, the hypotheses of the structure-conduct-performance model were tested, via a sample of 16 countries in Latin America, covering the period from 2011 to 2017, using panel data regression. This study, conducted for the banking industry in Latin America, rejected the premises of the structure-conduct-performance (SCP) model, which affirm that concentration reduces competition, causing higher profitability in the sector. In the comparison of the studied variables between the countries in the continent, Brazil presented the lowest competition index. The concentration and profitability assessments, in turn, presented results in line with the mean. The results of the research serve to elucidate the intense debate regarding the structure of the banking market. Moreover, they serve as a scientific basis for regulators’ actions, aiming to incentivize competition and reduce bank spread.

Implementasi Pengaruh Inflasi, Suku Bunga, dan CAR Terhadap Profitabilitas Bank Konvensional

2021 ◽  
Vol 5 (1) ◽  
Author(s):  
Vyonita Anggraeni Ningrum
Keyword(s):  
Data Collection ◽  
Interest Rates ◽  
Banking Sector ◽  
Stock Exchange ◽  
Bank Profitability ◽  
Collection Method ◽  
Financial Reports ◽  
Purposive Sampling ◽  
Independent Variable ◽  
Conventional Banks

This study aims to determine the effect of inflation, interest rates, and CAR on the profitability of conventional banks. This study uses four variables, namely inflation, interest rates, and CAR as the dependent variable, and bank profitability as the independent variable. The population in this study are banking sector companies that have been listed on the IDX (Indonesia Stock Exchange) for the period 2015-2019, totaling 43 companies. The data collection method uses purposive sampling using financial reports on conventional banks in Indonesia which are listed on the IDX in the 2015-2019 period. The results show that inflation, interest rates, and CAR simultaneously affect the profitability of conventional banks listed on the IDX for the 2015-2019 period, inflation has no significant effect on ROA, interest rates do not have a significant effect on ROA, and CAR has a significant effect on ROA. Keywords: Inflation; Interest rates; CAR (capital education ratio)

Do Islamic banks need to earn extra profits?

2019 ◽  
Vol 10 (3) ◽  
pp. 369-381 ◽  
Author(s):  
Yasushi Suzuki ◽  
S.M. Sohrab Uddin ◽  
Pramono Sigit
Keyword(s):  
Banking Sector ◽  
Islamic Law ◽  
Comparative Approach ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Content Type ◽  
Islamic Bank ◽  
Banking Market ◽  
Conventional Banks ◽  
Credit Portfolio

Purpose This paper aims to draw upon existing debate over “financial sector rent” (bank rent) to analyze the current pattern of financing of Bangladeshi and Indonesian Islamic banks during the period of 2011 and 2015. Design/methodology/approach The empirical evidence through a comparative approach of analyzing the performance of Islamic banks with that of conventional banks in respective countries – two of the largest countries where majority of the population are Muslims – is drawn to demonstrate the objective. Findings While Islamic banks in Bangladesh are primarily concentrating on the murabaha (mark-up contract) mode of financing, some transactions under musharaka (partnership/equity-based contract) are observed in the Indonesian Islamic banking sector. This anomaly in Indonesia can be explained by the nature of their musharaka financing which is not of the purely “participatory” financing type. As a result, we can observe the quasi-murabaha syndrome in Indonesian Islamic banking sector. The concentration of asset-based financing including consumers’ financing (hire purchase) in the credit portfolio gives Islamic banks relatively higher Islamic bank rent opportunity for protecting their “franchise value” as Sharīʿah-compliant (Islamic law-compliant) lenders. However, Indonesian Islamic banks share a still infant Islamic banking market, and enjoy less rent opportunity under a severe competition with conventional banks. Research limitations/implications The bank rent approach suggests that the syndrome observed both in Bangladesh and Indonesia can be ironically justifiable. Moreover, the mode of profit-and-loss sharing provides, in practice, an idea of the difficulty in managing the participatory financing embedded with high credit risk. Under this scenario, it is necessary for Islamic scholars and the regulatory authority to design an appropriate financial architecture, enabling Islamic banks to avail the benefit from a wider variety of Sharīʿah-based Islamic financing. Originality/value This paper expands the newly emerged concept of “Islamic bank rent” to make sense of the murabaha syndrome in Bangladesh and the quasi-murabaha syndrome in Indonesia. This approach also contributes to clarifying the unique risk and cost to be compensated with the spreads that Islamic banks are expected to earn.

scholarly journals PENGARUH KEKUATAN PASAR TERHADAP KECUKUPAN MODAL PADA BANK KONVENSIONAL DAN SYARIAH DI INDONESIA

2019 ◽  
Vol 1 (1) ◽  
pp. 111
Author(s):  
Yussi Ananda ◽  
Hasdi Aimon ◽  
Dewi Zaini Putri
Keyword(s):  
Market Power ◽  
Capital Adequacy ◽  
Islamic Banks ◽  
Short Term ◽  
Correction Model ◽  
Long Run ◽  
Banking Market ◽  
Short And Long Term ◽  
Conventional Banks

This study aims to find out how the Influence of Market Power on Capital Adequacy in Conventional and Islamic Banks in Indonesia in the long and short term. The data used are secondary data in the form of time series from 2006: Q1 to 2016: Q4, with documentation data collection techniques and library studies obtained from relevant institutions and agencies. The variables used are Market Power, Deposits, Capital, Inflation and Economic Growth. The research methods used are: (1) Error Correction Model (ECM) Analysis, (2) Classical Assumption Test. The results of the study show that (1) Short-term paths of Conventional Bank Market Power are higher than Islamic banks. This means that in the short term the Konvensionsal Bank dominates the banking market in Indonesia. While in the long run Market Power in Islamic Banks is higher than Conventional Banks. So Islamic banks in the long run dominate the banking market in Indonesia. (2) In the short term and long term deposits at Conventional Banks are higher compared to Islamic Banks. So conventional banks in the short and long term can collect more banking funds in Indonesia. (3) In the short and long term capital in Islamic banks is higher than conventional banks. So Islamic banks in the short and long term dominate banking capital in Indonesia. (4) In the short and long term, inflation in conventional banks is higher compared to Islamic banks. So it can be said that conventional banks in the short and long term are influenced by inflationary shocks in Indonesia. (5) In the short-term and long-term economic growth in Islamic banks is higher than conventional banks. So it can be said that Islamic banks in the short and long term are influenced by the high and low level of Indonesia's economic growth.Keywords: Market Power, Capital Adequacy, Conventional and IslamicBanks, and Error Correction Model (ECM).

scholarly journals Profit Distribution Management and Islamic Banks’ Market Power in Indonesia

2019 ◽  
Vol 4 (2) ◽  
pp. 58
Author(s):  
Tastaftiyan Risfandy
Keyword(s):  
Market Power ◽  
Governance Structure ◽  
Policy Implications ◽  
High Price ◽  
Muslim Country ◽  
Islamic Banks ◽  
Distribution Management ◽  
Profit Distribution ◽  
Banking Market ◽  
Conventional Banks

<p>Operating in the competitive dual banking market, Islamic banks’ behavior often mimics conventional banks. One of the ways to do this is by managing their earnings so that their deposit rate of return could be closely pegged to the conventional banks’ deposit interest rate. Farook et al. (2012) define this term as “profit distribution management” or PDM. This paper investigates whether PDM practice in Islamic banks is affected by their market power. Using a sample of Islamic banks from 2009 to 2013 from Indonesia, the most populous Muslim country adopting dual banking market, we find that bank with a high market power are less engage in PDM. This means that, when Islamic banks are able to set high price of their banking product in the competitive market, they are already reach specific market position. In this case, Islamic banks is observed manage their earnings but in the lower intensity. We also provide empirical evidence that other factors such as governance structure and market share of Islamic banks are also matter for the PDM. Some policy implications are discussed.</p>

scholarly journals Studi Empiris Kekuatan Stabilitas Keuangan Perbankan Syariah di Indonesia

2019 ◽  
Vol 8 (2) ◽  
pp. 147
Author(s):  
Elok Heniwati
Keyword(s):  
Banking Sector ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Secondary Data ◽  
Annual Reports ◽  
Islamic Banking ◽  
Insolvency Risk ◽  
Conventional Banks ◽  
The Stability ◽  
The Global Financial Crisis

The study aims to examine the stability of Islamic banking in Indonesia after the global financial crisis. This study is significant, considering the rapidly growth of Islamic banking in Indonesia and uniqueness of its operating systems and products. By using secondary data from the annual reports of the banking sector listed on the Indonesia Stock Exchange (IDX) for the period from 2013 to 2016, regression analysis with the ZSCORE function (insolvency risk) as the dependent variable and a number of predictor variables (firm-specific, macroeconomic and governance) are used as tools for achieving research objectives. To check the robustness of the research findings, a model with different specifications has been used. The results indicate that profitability and firm size have a significant influence on the insolvency risk (ZSCORE) of banks and empirical factors that influence these risks differ between Islamic banks and conventional banks.

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.

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