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What drives the banking competition in Islamic finance oriented countries? Islamic vs conventional banks

What drives the banking competition in Islamic finance oriented countries? Islamic vs... This study aims to examine the dynamics of banking competition between Islamic banks (IBs) and conventional banks (CBs) in emerging finance-oriented Islamic economies, also known as the QISMUT + 3 (i.e. Qatar, Indonesia, Saudi Arabia, Malaysia, the United Arab Emirates, Turkey, Bahrein, Kuwait and Pakistan). The main aim was to conduct a comparative market power analysis between IBs and CBs in the 2006–2015 period.Design/methodology/approachThe study used bank-specific and macro-economic variables available in the Orbis Bank Focus and the World Bank databases. The study applied a dynamic approach to detect endogeneity problems and unobserved heterogeneity using the two-step system GMM estimate.FindingsThe research shows that market power persists in both types of banks over time. It also demonstrates that capital adequacy does not explain the market power of banking in the studied countries. Unlike IBs, the scale of banking does not influence the market power CBs. Corruption undermines competition in the conventional banking system. However, because of the ideological orientation of IBs, corruption does not affect their competitiveness. IBs outperform CBs in QISMUT + 3 countries in terms of banking competitiveness. They also have higher persistency of market power in the region.Practical implicationsThis study is a very beneficial source of information that can provide effective guidelines for efficient productivity and improved competitiveness of IBs and CBs in finance-oriented Islamic countries.Originality/valueThe study is the first to compare the market power of IBs and CBs in this country classification. In addition, the study examined a large number of IBs and CBs to carry out this research. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Islamic Accounting and Business Research Emerald Publishing

What drives the banking competition in Islamic finance oriented countries? Islamic vs conventional banks

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References (37)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1759-0817
DOI
10.1108/jiabr-06-2020-0173
Publisher site
See Article on Publisher Site

Abstract

This study aims to examine the dynamics of banking competition between Islamic banks (IBs) and conventional banks (CBs) in emerging finance-oriented Islamic economies, also known as the QISMUT + 3 (i.e. Qatar, Indonesia, Saudi Arabia, Malaysia, the United Arab Emirates, Turkey, Bahrein, Kuwait and Pakistan). The main aim was to conduct a comparative market power analysis between IBs and CBs in the 2006–2015 period.Design/methodology/approachThe study used bank-specific and macro-economic variables available in the Orbis Bank Focus and the World Bank databases. The study applied a dynamic approach to detect endogeneity problems and unobserved heterogeneity using the two-step system GMM estimate.FindingsThe research shows that market power persists in both types of banks over time. It also demonstrates that capital adequacy does not explain the market power of banking in the studied countries. Unlike IBs, the scale of banking does not influence the market power CBs. Corruption undermines competition in the conventional banking system. However, because of the ideological orientation of IBs, corruption does not affect their competitiveness. IBs outperform CBs in QISMUT + 3 countries in terms of banking competitiveness. They also have higher persistency of market power in the region.Practical implicationsThis study is a very beneficial source of information that can provide effective guidelines for efficient productivity and improved competitiveness of IBs and CBs in finance-oriented Islamic countries.Originality/valueThe study is the first to compare the market power of IBs and CBs in this country classification. In addition, the study examined a large number of IBs and CBs to carry out this research.

Journal

Journal of Islamic Accounting and Business ResearchEmerald Publishing

Published: Jul 13, 2021

Keywords: Islamic banking; Emerging markets; Conventional banking; QISMUT+3; Banking competition determinants; Top nine Islamic finance-oriented countries

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