Performance comparison of Islamic (participation) banks and commercial banks in Turkish banking sector

Performance comparison of Islamic (participation) banks and commercial banks in Turkish banking... Purpose – The purpose of this paper is to attempt to compare the performance of Islamic banks against conventional banks in Turkey. This comparison is much more distinctive and significant in Turkey when compared to other countries, as Turkey stands as a model for the world in interest‐free banking system. Design/methodology/approach – The comparative performance analysis was conducted by means of logistic regression method during the period of 2001‐2009. The CAMELS approach is utilized to assess the managerial and financial performance of banks. Findings – The results signify that Islamic banks operating in Turkey perform better in profitability and asset management ratios compared to conventional banks but lag in sensitivity to market risk criterion. These findings might mainly be ascribed to the fact that these banks allow lower provisional losses compared to conventional banks and have some tax advantages. Research limitations/implications – Utilizing a more recent and consistent data set, the analyses could be replicated to determine if the results are subject to any sample bias. Practical implications – These finding reveal significant implications for potential entrants into Turkish banking sector particularly for foreign investors. Social implications – The findings from this study may reinforce the awareness and confidence in participating banks in Turkey. Originality/value – Turkey is particularly interesting to conduct this analysis because Turkey is a Muslim but secular country and both Islamic and conventional banks are subject to same set of banking regulations which are based on Western traditional banking system. Furthermore, to the knowledge, there is not a comprehensive study that compares the performance of conventional and Islamic banks in a Western banking system. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png EuroMed Journal of Business Emerald Publishing

Performance comparison of Islamic (participation) banks and commercial banks in Turkish banking sector

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Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1450-2194
DOI
10.1108/EMJB-05-2013-0024
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to attempt to compare the performance of Islamic banks against conventional banks in Turkey. This comparison is much more distinctive and significant in Turkey when compared to other countries, as Turkey stands as a model for the world in interest‐free banking system. Design/methodology/approach – The comparative performance analysis was conducted by means of logistic regression method during the period of 2001‐2009. The CAMELS approach is utilized to assess the managerial and financial performance of banks. Findings – The results signify that Islamic banks operating in Turkey perform better in profitability and asset management ratios compared to conventional banks but lag in sensitivity to market risk criterion. These findings might mainly be ascribed to the fact that these banks allow lower provisional losses compared to conventional banks and have some tax advantages. Research limitations/implications – Utilizing a more recent and consistent data set, the analyses could be replicated to determine if the results are subject to any sample bias. Practical implications – These finding reveal significant implications for potential entrants into Turkish banking sector particularly for foreign investors. Social implications – The findings from this study may reinforce the awareness and confidence in participating banks in Turkey. Originality/value – Turkey is particularly interesting to conduct this analysis because Turkey is a Muslim but secular country and both Islamic and conventional banks are subject to same set of banking regulations which are based on Western traditional banking system. Furthermore, to the knowledge, there is not a comprehensive study that compares the performance of conventional and Islamic banks in a Western banking system.

Journal

EuroMed Journal of BusinessEmerald Publishing

Published: Jul 1, 2014

Keywords: Islamic banking; Logistic regression; CAMELS analysis; Participation banks

References

  • The efficiency of Islamic and conventional commercial banks in Malaysia
    Ahmad, S.; Rahman, A.R.A.
  • Financial ratios, discriminant analysis, and the prediction of corporate bankruptcy
    Altman, E.
  • A survey of business failures with an emphasis on prediction methods and industrial applications
    Dimitras, A.I.; Zanakis, S.H.; Zopounidis, C.
  • Islamic banking in theory and practice: the experience of Bangladesh
    Hassan, M.K.
  • Performance of Islamic and mainstream banks in Malaysia
    Rosly, S.A.; Bakar, M.A.A.
  • A comparative study on the level of efficiency between Islamic and conventional banking systems in Malaysia
    Yahya, M.H.; Muhammad, J.; Abdul Hadi, A.R.

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