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Article
Publication date: 8 July 2019

Syed Faraz Ali and Muhammad Naeem

The purpose of this paper is to unfold the relationship between service quality and level of performance of conventional and Islamic banks. Also, it intends to uncover what are…

Abstract

Purpose

The purpose of this paper is to unfold the relationship between service quality and level of performance of conventional and Islamic banks. Also, it intends to uncover what are the features of service quality which can raise the level of performance either in conventional banks or Islamic banks. There is rare literature available that focused on comparative study between above stated banking systems based on emerging parameters of SERVQUAL model.

Design/methodology/approach

To meet the objectives of this investigation, research data has been from 450 customers who have had accounts and dealings with conventional and Islamic banks in the previous five years. The customers are selected based on cluster sampling from regional offices of conventional and Islamic banks.

Findings

The collected data have been analyzed by using confirmatory factor analysis (CFA) technique followed by common method variance (CMV), multiple regression test and independent sample t-test used to examine the parameters of service quality in the context of banks performance. The purpose of CFA is to find the model validity, while multiple regression and t-test is performed in order to examine the influence of service quality parameters on banks performance.

Originality/value

The study used compliance as a one of the emerging and unique dimension of service quality. This dimension is rarely investigated in the context of measuring the level of bank performance of conventional and Islamic banking systems. Findings reveal responsiveness and assurance is the strongest predictor of conventional banking performance. Compliance and reliability has significant and positive impact on the level of performance of Islamic banks. Moreover, the study has practical implications for the top management and stakeholders of conventional and Islamic banks to increase the level of performance by using SERVQUAL model.

Details

Journal of Management Development, vol. 38 no. 6
Type: Research Article
ISSN: 0262-1711

Keywords

Article
Publication date: 7 October 2020

Fakarudin Kamarudin, Nazratul Aina Mohamad Anwar, Annuar Md. Nassir, Fadzlan Sufian, Khar Mang Tan and Hafezali Iqbal Hussain

This study aims to examine the impact of country governance and other potential bank-specific characteristics and macroeconomic condition determinants on bank productivity in the…

Abstract

Purpose

This study aims to examine the impact of country governance and other potential bank-specific characteristics and macroeconomic condition determinants on bank productivity in the period of 2006–2016.

Design/methodology/approach

The productivity level of total 167 banks selected from Malaysia, Indonesia, Brunei and Singapore are evaluated using the data envelopment analysis-based Malmquist productivity index method. A panel regression analysis framework based on ordinary least squares, a fixed effect and a random effect models then are used to identify its main determinants.

Findings

The empirical findings indicate that the total factor productivity changes of Islamic banks is higher than conventional banks. The liquidity and global financial crisis influence both banks’ productivity. Bank size, credit risk, market power, management efficiency and inflation merely influence Islamic banks’ productivity. On the country governance dimensions, voice and accountability are found to positively influence both banks’ productivity. Regulatory quality and rule of law (RL) significantly influences the conventional parts. Political stability and absence of violence, government effectiveness, RL and control of corruption negatively influence the banks’ productivity, but this influence is only significant for the Islamic banks.

Originality/value

Country governance has received surprisingly little attention in the banking industry over the past few decades. Majority of the studies that examine the effect of governance on bank performance have focused more on the micro governance dimension. Thus, to the best of the researcher’s knowledge, no study has been done to address the effect of country governance on the productivity of the Islamic and conventional banks.

Article
Publication date: 22 June 2021

Sutan Emir Hidayat, Muhammad Rizky Prima Sakti and Raqiya Ali Abdullah Al-Balushi

The purpose of this study is to critically evaluate how conventional and Islamic banks trade off risk, efficiency and financial performance in their business models, to…

1217

Abstract

Purpose

The purpose of this study is to critically evaluate how conventional and Islamic banks trade off risk, efficiency and financial performance in their business models, to investigate how patterns of risk and efficiency vary between conventional and Islamic banks and to critically evaluate how the profitability of conventional and Islamic banks varies following the financial crisis.

Design/methodology/approach

This study uses univariate and multivariate statistical techniques by investigating 12 Islamic banks and 34 conventional banks operating in the Gulf Cooperation Council (GCC) region has been studied over the period 2011–2018.

Findings

The results suggest that Islamic and conventional banks differ not in the levels of efficiency, risk and profitability, but rather in how risk and efficiency influence banks’ financial performance. Islamic banks are found to be less influenced by the adverse effects of credit risk, which is consistent with the risk-sharing nature of Islamic financing. However, the results only hold for return on assets (ROA) and return on equity (ROE) while the net interest margin is observed to be negatively influenced by credit risk. Lower cost-income efficiency is also found to boost ROA and ROE of Islamic banks which could be attributed to a larger share of non-interest revenues due to Sharīʿah-compliance.

Research limitations/implications

From a theoretical point of view, this study helps to understand the risk, efficiency and financial performance of Islamic banks in comparison with conventional banks.

Practical implications

The results of this study can serve bank managers, regulators and shareholders. Policymakers should encourage a more risk-sharing structure of Islamic financing as it brings less adverse effects of credit risk and increases income sustainability for Islamic banks. The present study may help bank managers to improve the financial performance of their firms by controlling risk and efficiency. The study results also have implications for shareholders and depositors of Islamic and conventional banks as they should have a predetermined position about the level of credit risk and efficiency in each banking system.

Originality/value

The foremost contribution is that this is one of the few studies to compare risk, efficiency and financial performance of Islamic and conventional banks in the GCC region. By using the latest data, this paper hopes that the findings will be more relevant than previous studies to the current situation of the banking industry in the region.

Details

Journal of Islamic Accounting and Business Research, vol. 12 no. 4
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 6 July 2020

Sri Rahayu Hijrah Hati, Gita Gayatri and Kenny Devita Indraswari

This study aims to examine the interactive effect of the push factor from the conventional bank, the pull factor from the Islamic bank and the internal mooring factor of the…

1044

Abstract

Purpose

This study aims to examine the interactive effect of the push factor from the conventional bank, the pull factor from the Islamic bank and the internal mooring factor of the customers in influencing the switching behavior of two types of customer account holders, the conventional only and the mixed (conventional and Islamic bank) account holders, from the services marketing mix perspective.

Design/methodology/approach

This study applied an explanatory research design. The data were collected via an online survey from 1,171 Muslim participants; participants consisted of conventional only account holders, Islamic bank only account holders and mixed (conventional and Islamic bank) account holders. The data were mainly analyzed using structural equation modeling.

Findings

Based on the account, the results showed that the three types of customers differ significantly in terms of the effect of the push, pull and mooring factors. The study also showed that the mooring factor, which is internal to the customer, is the most significant factor that inhibits customers from migrating to Islamic banks. The effect was observed for both conventional customers and those who hold mixed accounts.

Research limitations/implications

The study was conducted via an online survey, which reduces the representativeness of the sample. In addition, most respondents were urban dwellers and well educated, which might not represent the banking behaviour of Indonesian Muslim customers in general.

Practical implications

The study implies that to attract the conventional only account holder, Islamic banks should first weaken the mooring factors (the internal characteristics of the customers) that inhibit customers from switching to an Islamic bank.

Originality/value

The main contribution of the study is that it simultaneously identifies the push, pull and mooring factors that have the most significant impacts on Muslim customers' switching behavior from a conventional to an Islamic bank.

Details

Journal of Islamic Marketing, vol. 12 no. 8
Type: Research Article
ISSN: 1759-0833

Keywords

Article
Publication date: 12 August 2014

Rim Ben Selma Mokni and Houssem Rachdi

– Which of the banking stream is relatively more profitable in Middle Eastern and North Africa (MENA) region?

3063

Abstract

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.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 7 no. 3
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 2 January 2018

Rosylin Mohd Yusof, Farrell Hazsan Usman, Akhmad Affandi Mahfudz and Ahmad Suki Arif

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia…

1151

Abstract

Purpose

This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence.

Design/methodology/approach

The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing.

Findings

This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates.

Research limitations/implications

This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry.

Practical implications

The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest.

Social implications

Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study.

Originality/value

This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

Details

Journal of Islamic Accounting and Business Research, vol. 9 no. 1
Type: Research Article
ISSN: 1759-0817

Keywords

Article
Publication date: 9 July 2018

Afifa Ferhi

This paper aims to evaluate the credit risk of Islamic and conventional banks and its relationship with the capital in 14 countries of the Middle East and North Africa region. To…

1297

Abstract

Purpose

This paper aims to evaluate the credit risk of Islamic and conventional banks and its relationship with the capital in 14 countries of the Middle East and North Africa region. To do this, a sample of 58 Islamic banks and 89 conventional banks during the 2005-2015 period was used.

Design/methodology/approach

In fact to measure the difference between Islamic banks and their conventional counterparts in terms of credit risk, the generalized method of moments is used.

Findings

The results showed that the conventional model has a higher credit risk than the Islamic one. These results also showed that the larger an Islamic bank is, the higher its credit risk will be to get closer to that of conventional banks.

Originality/value

This investigation is based on actual data for each bank available in the Bank-Scope database provided by the Van Dijik office (2013). It should be noted that almost all the recent empirical studies interested in the world banking sector essentially use this database.

Details

International Journal of Law and Management, vol. 60 no. 4
Type: Research Article
ISSN: 1754-243X

Keywords

Article
Publication date: 16 November 2021

Ribed Vianneca W Jubilee, Fakarudin Kamarudin, Ahmed Razman Abdul Latiff, Hafezali Iqbal Hussain and Nazratul Aina Mohamad Anwar

Globalisation has influenced many countries, over the last few decades with financial globalisation and liberalisation bringing regulatory reforms in the banking sector. Thus…

Abstract

Purpose

Globalisation has influenced many countries, over the last few decades with financial globalisation and liberalisation bringing regulatory reforms in the banking sector. Thus, this study aims to fill a gap in the literature by examining the influence of globalisation on Islamic and conventional bank productivity in Southeast Asia.

Design/methodology/approach

The sample comprised 155 banks (23 Islamic and 132 conventional) from 4 countries from 2008 to 2017. Panel data techniques will be used, together with data envelopment analysis (DEA)-based Malmquist productivity index (MPI), to investigate the impact of chosen main determinants on bank productivity. A panel regression analysis will be performed after generating the productivity index from the DEA-based MPI frontier.

Findings

According to the findings, Islamic banks are statistically significantly more productive than conventional banks, and the findings of the t-test are corroborated by the findings of nonparametric tests. Furthermore, the findings of the panel regression model reveal that bank specific factors and macroeconomic variables are significant determinants to bank productivity. Surprisingly, the findings also show that the influence of social globalisation elements tends to be negatively related to conventional bank productivity.

Originality/value

This study adds to the existing literature by bridging the globalisation gap in the productivity of the dual banking industry, particularly in the specific context of Southeast Asia, given that the area is representative of Islamic and finance globally.

Details

Asia-Pacific Journal of Business Administration, vol. 14 no. 4
Type: Research Article
ISSN: 1757-4323

Keywords

Article
Publication date: 12 June 2017

Siew Peng Lee and Mansor Isa

The purpose of this paper is to determine of bank margins for conventional and Islamic banks in the dual banking system in Malaysia.

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Abstract

Purpose

The purpose of this paper is to determine of bank margins for conventional and Islamic banks in the dual banking system in Malaysia.

Design/methodology/approach

The study uses unbalanced panel data for 20 conventional banks and 16 Islamic banks over the period 2008-2014. The dynamic two-step GMM estimator technique introduced by Arellano and Bond (1991) is applied.

Findings

The results suggest that there are significant similarities with minor differences in terms of factors determining bank margins between conventional and Islamic banks in Malaysia. The margins for conventional banks are influenced by operating costs, efficiency, credit risk, degree of risk aversion, market share, size of operation, implicit interest payments and funding costs. For Islamic banks, the margin determinants are found to be operating costs, efficiency, credit risk, market share and implicit interest payments. This means that more factors influence the margins in conventional banks compared to Islamic banks. Although bank diversification activities have increased in recent years, their impact on bank margins is minimal.

Practical implications

The results suggest that improving operational costs, operational efficiency and credit risk management, and minimising implicit interest payments would be the best strategy to enhance the bank margins for both conventional and Islamic banks. The results also have important policy implications on the necessity to expand the size of Islamic banking in Malaysia.

Originality/value

There are relatively few studies concerning determinants of bank margins in emerging markets. The present study adds to the literature by presenting evidence from Malaysia, an emerging market with a dual banking system. This allows us to explore the similarities and differences between conventional and Islamic banks in Malaysia in respect of determinants of the margins.

Details

Managerial Finance, vol. 43 no. 6
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 10 November 2020

Ioannis Anagnostopoulos, Emmanouil Noikokyris and George Giannopoulos

The purpose of this paper is to comparatively examine the cost and the overlooked revenue efficiency of Islamic and commercial banks in the aftermath of the crisis, operating in…

Abstract

Purpose

The purpose of this paper is to comparatively examine the cost and the overlooked revenue efficiency of Islamic and commercial banks in the aftermath of the crisis, operating in nine MENA-based countries during the 2010-2017 financial period, where the established empirical work is relatively limited. The authors also update the research where they use recent data sets and they provide for a targeted, structured literature review pre- and post-crisis in the Gulf region.

Design/methodology/approach

The authors examine cost and revenue efficiency of 25 major Islamic banks (IBs) and 25 major conventional banks (CBs). They conduct tests on the determinants of such variables. In the first stage of the analysis, they measure efficiency by using the data envelopment analysis (DEA) technique. The analysis performs regressions where these also reveal that the bank efficiency index is influenced by various bank type-specific attributes. It also seems that tighter restrictions on bank activities are negatively associated with bank efficiency. Second stage analysis, which accounts for banking environment and bank-level characteristics, confirms these results.

Findings

Conventional banks are both more cost and revenue efficient than Islamic banks over the period under examination. The analysis also reveals that the bank efficiency index is influenced by bank-type attributes. Greater presence of fixed capital resources has positive effects on growth in both Islamic and conventional banking. The major constraints impeding Islamic banking growth include labour costs. The authors examine whether and how bank-type orientation affects the cost and revenue efficiency of conventional and Islamic banks. They find that post-crisis Islamic banks underperform their conventional counterparts on both accounts within a mixed banking system.

Research limitations/implications

This study did not include comparative data before the 2008 financial crisis. There is also a great deal of heterogeneity among Islamic banks in the samples that have been examined here and by other researchers and the constructed efficiency scores should be interpreted cautiously as divergent Islamic banks are pooled in the same samples.

Practical implications

This study identified factors that may help bank managers to improve their financial outlook by controlling revenue and cost efficiency profitability. These factors could as well help to understand how some indicators affect both cost and revenue efficiency, particularly in Islamic banking. It also seems that tighter restrictions on Islamic bank activities are negatively associated with bank efficiency. Islamic banks that directly compete with their conventional counterparts in the aftermath of the crisis are less efficient on both the cost and revenue frontiers. They are potentially hindered by the differential regulations of supervising authorities in dual banking systems.

Social implications

The authors provide recommendations regarding regulatory and other issues that are relevant to Islamic banking and further research is suggested. Findings are relevant to a variety of stakeholders (managers, policymakers and regulators). Islamic banking authorities could re-examine the benefits of partially moving to a more standardized/conventional system of banking by lifting some trading restrictions. In addition, developing and maintaining managerial skills is an indispensable instrument for the long-term endurance of any system. A related aspect is thus an effort to determine the holistic efficiency (including managerial) of Islamic banks as a guide for policymakers to improve managerial performance.

Originality/value

There is relatively limited empirical work that investigates the efficiency between Islamic and conventional banking in the aftermath of the crisis in the Gulf region despite the growing importance of this region on political and economic levels. The authors also examine the revenue efficiency measure often under-researched in the literature and particularly important for comparative studies. Overseas-owned banks have attained much higher infiltration levels in middle-eastern countries over the past decade. It has also been suggested that market penetration differences may also be related to bank efficiency concerns among countries and their financial systems as opposed to types of banks.

Details

Journal of Islamic Accounting and Business Research, vol. 11 no. 9
Type: Research Article
ISSN: 1759-0817

Keywords

21 – 30 of over 27000