Search results

Many banking efficiency studies have focused on conventional banks. Recently, Islamic banks have opened in many countries and operated in similar fashion to traditional banks. This chapter measures and compares Islamic banking efficiency to conventional banking efficiency represented by three European countries – Germany, Turkey and the United Kingdom. The study covers the period from 2005 to 2008 in measuring the X-efficiency using the non-parametric method, known as Data Envelopment Analysis (DEA). It reveals that Islamic banks are technically more efficient than conventional banks but are beset by lower allocative efficiency. This results in lower cost efficiency for Islamic banks in comparison to the more conventional banks in Europe.

Purpose – This research analyses the stability of a number of banks operating in Malaysia by using descriptive statistical analysis based on internal variables. These include the characteristics of the bank, capital adequacy ratio, ratio of profitability, liquidity ratio and the ratio of bank operations.

Methodology/approach – Each bank’s stability is studied using z-score analysis. Data are sourced from the balance sheets and income statements of the banks from 2000 to 2011.

Findings – The results indicate that characteristics of a bank do influence a bank’s performance. There are significant differences in financial ratios between Islamic and conventional banking. Islamic banks provide a lower loan loss of capital to cover impaired loans than conventional banks. This provides high capital based on the mean value obtained. The capital ratio allows both sets of banks to meet the capital adequacy ratio set by the Central Bank of Malaysia. Meanwhile, in profitability ratios, conventional banks have higher returns on higher assets, whereas Islamic Banking has higher returns on higher equity. Only 8 Islamic banks and 11 conventional banks are highly stable banking institutions in Malaysia.

Originality/value – Islamic and conventional banking systems in Malaysia need further improvement to deal with unexpected economics crises and increased competition between the two. Hence, Islamic banking must be refined, especially for improving their stability to attract more investments for further development and performance.

This paper aims to investigate a fundamental research question of whether the Islamic banking business model makes corporate earnings more uncertain. This question arises because prior research shows that Islamic banks do well in loan performance but incur more operational costs than conventional banks, indicating the systemic limitation of Islamic banks in business risk management.

The study used a sample of banks to conduct the panel regression analysis with 15 years of data for 532 banks (129 Islamic and 403 conventional) from 23 Muslim countries across the world. The authors estimate earnings uncertainty in two ways: the spread and standard deviation of the country-adjusted return over the sample period and applied the difference-in-difference approach interacting cost to income ratio with the Islamic bank dummy, checking if Islamic bank’s high operational costs contribute to more earning uncertainty.

Islamic banks’ returns on assets are significantly more uncertain than conventional banks due to higher operational costs. Consistent with earlier evidence, the study also finds that Islamic banks generally have fewer nonperforming loans than conventional banks. The authors conclude that Islamic banks trade-off between reducing credit risk and escalating business risk.

This study documents that the Islamic banking model helps build a safer asset portfolio but gives rise to the uncertainty of corporate earnings. Therefore, the choice between Islamic and conventional banking models involves a trade-off between credit and business risks. It is a new finding that we add to the literature body on Islamic finance.

The purpose of this paper is to investigate empirically the channels through which Islamic and/or conventional banking can spur economic growth in MENA region.

The study uses a range of developed econometric approaches, including panel cointegration technique, panel Granger causality test and a panel-based vector error correction model (VECM), to analyze explicitly all the causal relationships among Islamic banking, conventional banking development and economic growth in a unified framework.

The empirical results show that Islamic banking in MENA countries not only leads to economic growth but also affects positively and significantly conventional banking development. Thus, Islamic banking has an active role and could be classified as “supply-following” since its development only leads to economic growth, whereas conventional banking, with passive role, could be classified as “demand-following” since it only reacts to economic growth in long run.

The study has two principal limitations. It is conducted within a relatively limited time period and sample of countries. Also, the used models did not take into account the impact of others financial and macroeconomic variables like stock market development, interest rate, inflation and financial crisis.

The results have two main implications. First, in MENA countries, well-functioning Islamic banking sector could not only promote economic growth but also can be served as a development factor for their conventional one. Second, unlike conventional banks, the customer of Islamic banks seems not to be motivated by interest and profits. Rather religious factors are recommended as the main motive for investing and saving in Islamic banks.

The study tries to perceive whether there exists a substitution or complementarity effect between Islamic and conventional banking in promoting economic growth for MENA countries. This situation is neither revealed nor clarified in the relevant literature.

There are some Muslims who only hold conventional bank accounts, regardless that some believe that such banks implement an interest charging system that contradicts Islamic law concerning the prohibition of charging interest. This study aims to investigate the consumers’ tendency to regret (CTR) related to purchasing conventional banking services (CTR-P) and the failure to purchase Islamic banking services (CTR-NP). Then, this study investigates whether CTR-P and CTR-NP translate into regret, which, in turn, leads to the intention to save money in Islamic banks.

A survey of Indonesian Muslims who only hold conventional banking accounts was conducted. There were 323 participants. This study then applied a partial least square structural equation modeling (PLS-SEM) to test the hypotheses.

This study found that a combination of CTR-P and CTR-NP translates into regret, which then drives the intention to save money in Islamic banks as a means of releasing such feelings of regret. The findings suggest that Muslims evaluate their banking decision on an Islamic basis and that making a decision that contradicts the prohibition of charging interest tends to cause regret. Islamic banks have opportunities to penetrate the market by focusing on Muslims who only hold accounts with conventional banks.

The findings of this study help advance understanding of Muslims’ negative emotional experience due to making a decision that they perceive contradicts Islamic law. Also, the findings help predict the strategy that Muslims use to neutralize such a negative emotional experience.

This paper aims to assess the nature of competition between conventional and Islamic banks operating in Malaysia. It is an effort to enrich the existing literature by offering an empirical compromise on the differences in the results of studies related to competition between the two types of banks.

Secondary data on all banks operating in Malaysia’s diversified banking sector is collected from the FitchConnect database for the period 2011-2017. A non-structural measure of competition (H-statistic) as informed by Panzar–Rosse is used to measure the competition between conventional and Islamic banks. Panel data analysis techniques are used to estimate H-statistic. Wald test for the market structure of perfect competition/monopoly is used to affirm the validity and consistency of the results.

The findings of this study signify that the Malaysian banking sector operated under monopolistic competition during the period of study. The long-run equilibrium condition holds for the Malaysian banking sector. Competition among conventional banks is more intense than that among Islamic banks. Financial reform endeavours of Bank Negara Malaysia (BNM) along with the liberalisation wave of the financial system were successful in promoting competition, rendering the financial system contestable, resilient and dynamic.

Regulators and policymakers may find the results beneficial in terms of rethinking the number of banks operating in the Islamic sector. The number of banks, however, is not the only determinant of competition in the banking sector. Implications of competition change for stability and risk-taking behaviour of banks should be considered.

Within the context of Malaysia’s diversified banking system, given the contradictory results reported in studies on competition, this study is an effort to provide a plausible middle ground. It suggests a possible answer as to why competition nature has not changed since the policy change initiatives of BNM, namely, banks merger, expansion of Islamic banking operation scope and liberalisation process.

The purpose of this paper develops a conceptual model of social influence for Internet banking adoption (IBA) using social networking platforms (SNPs). It identifies the antecedents of social influence that can positively and negative influence the IBA among a targeted population of conventional and Islamic banks. Moreover, this paper contributes various factors to social influence theory with the purpose of enhancing its implication in the context of Internet banking uptake in developed and developing countries.

This study uses a social constructivism approach to understand customer experiences, thoughts, knowledge, awareness and perceptions in relation to IBA. For this study, data were collected from 30 respondents using semi-structured interviews and purposive sampling.

Social influence comprises customer recommendations, suggestions, ratings, reviews, experiences and thoughts regarding the IBA of Islamic and conventional banks. The findings reveal that social reviews, social experts, social consensus, social responsibility and social perceptions are the key antecedents of social influence that can enhance IBA of SNPs. The research finds that positive social reviews, expert support, consensus, social responsibility and social perceptions are significant in relation to conventional Internet banking. The respondents revealed serious concerns about the privacy of their personal and financial information especially in relation to Islamic banks.

The effective and well-organized use of SNPs can foster service reviews, word of mouth, higher levels of service awareness, interactive communication, social consensus and social trust to drive the adoption of Internet banking. This study proposes the conceptual model which has positive business implications and provides the banks direction to use the SNPs to their advantage to influxes their customers to adopt the use of Internet banking.

Most previous studies have used technology acceptance model, theory of planned behavior and unified theory of acceptance and the use of technology theories in the adoption of technology and IBA. These theories have not fully illuminated the role of social content as a way to enhance or decrease the number of customers in conventional and Islamic banks. This study develops social influence theory by exploring several dimensions (i.e. social reviews, awareness, consensus, cooperation and experts support) in the context of IBA for users of SNPs. Social influence can create more reviews and can lead to more prepurchase information. It can drive customer inquiries and engagement and can inform purchase decisions for IBA. On the other hand, it can motivate existing customers of Islamic banks to use conventional banking services due to effective word of mouth.

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.

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.

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.

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.

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.

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.

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.

The purpose of this study is to evaluate the global developments in the area of fintech solutions by analyzing Islamic and Conventional banks core accounting and market analysis IFIs and their impact on financial inclusion within its core markets.

The authors collect and analyze annual accounting and market Data of the top ten largest Islamic banks and the top ten US Conventional banks, in terms of Total Asset and Market Capitalization, from Bloomberg Data.

The analysis of Bloomberg data shows higher risk-return for Islamic banks–except ROE Market measure that we suggest-than US conventional banks. Nonetheless, Islamic banking grew faster than conventional banking over the period 2006–2021. As a business model, we find that Islamic banks take more credit with more than seventy percent of their profit from loans, while US conventional banks struggle to reach seventy percent interest rate ratio. The authors’ research documents that Fintech and digitalization are driving Islamic finance growth during financial and economic downturns.

FinTech data is not available for banks, further insights of analysis on FinTech and Innovations in the banking sectors.

Islamic banks continuously innovate to satisfy the users of their services and Fintech is opportune to innovation. This study could be interesting for both practitioners and academics wishing to understand and compare Islamic and conventional banking futures.

The authors compared two banking systems, the US and Islamic Banks, which could be useful for users to differentiate between those banking operations.

The authors collected accounting and market data from Bloomberg of top 10 Islamic and top 10 US Conventional banks from 2006 to 2021 to examine Risk-Return, Growth and Business Model of those banks. The authors propose a new Risk-Return measure ROE-Market and its volatility.

This paper aims to examine the effect of state ownership on bank performance for all banks in the Gulf Cooperation Council (GCC) countries during the period 2003 – 2018, for two distinct banking systems: the conventional and the Islamic banking systems.

To achieve the goal of the study, this paper uses a mean t-test to examine the mean difference of the related variables for both banking systems, and a regression test (using the GMM method) to explore the effect of state ownership on bank performance.

The most important result of the analysis is that state ownership has a significantly positive influence on bank performance for conventional banks but not for Islamic banks, in the GCC area.

This study adds to the scarce related literature comparative empirical results with respect to the impact of ownership on the performance of two different banking systems: the conventional system and the Islamic banking system in the GCC area. This study is likely to have implications for policymakers in terms of developing rules relevant to the governance of GCC’s two banking systems that can help to support the stability of the whole banking sector.