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Article
Publication date: 18 October 2021

Turki Alshammari

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

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

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Book part
Publication date: 8 November 2010

Wahida Ahmad and Robin H. Luo

Many banking efficiency studies have focused on conventional banks. Recently, Islamic banks have opened in many countries and operated in similar fashion to traditional…

Abstract

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.

Details

International Banking in the New Era: Post-Crisis Challenges and Opportunities
Type: Book
ISBN: 978-1-84950-913-8

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Book part
Publication date: 19 November 2018

Ahmad Azam Sulaiman @ Mohamad, Mohammad Taqiuddin Mohamad and Siti Aisyah Hashim

Purpose – This research analyses the stability of a number of banks operating in Malaysia by using descriptive statistical analysis based on internal variables. These…

Abstract

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/valueIslamic 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.

Details

New Developments in Islamic Economics
Type: Book
ISBN: 978-1-78756-283-7

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Article
Publication date: 11 December 2020

Burhanudin Burhanudin

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

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

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Article
Publication date: 28 May 2020

Rafik Harkati, Syed Musa Alhabshi and Salina Kassim

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Practical implications

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.

Originality/value

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.

Details

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

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Article
Publication date: 23 April 2020

Muhammad Naeem

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Originality/value

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.

Details

Asia Pacific Journal of Marketing and Logistics, vol. 33 no. 1
Type: Research Article
ISSN: 1355-5855

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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…

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

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Article
Publication date: 8 May 2017

Sulaiman Abdullah Saif Al-Nasser Mohammed and Datin Joriah Muhammed

The purpose of this paper is to investigate the performance of Islamic banks in developing countries from 2007 to 2010 which includes the period of the financial crisis by…

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1340

Abstract

Purpose

The purpose of this paper is to investigate the performance of Islamic banks in developing countries from 2007 to 2010 which includes the period of the financial crisis by empirically examining the way in which the macroeconomy affected Islamic banking performance (IBP) in developing countries. The empirical examination involves two approaches of measuring performance: Sharia-based and conventional-based performance measurement.

Design/methodology/approach

For this paper, the authors have utilized a Data Stream/Bank Scope database and data from the Bank Negara Malaysia (Malaysian Central Bank) to collect a panel set of annual financial information for Islamic banking from the year 2007-2010. The initial sample covers 34 Islamic banks from developing countries that are listed on the International Islamic Service Board. Furthermore, the authors adopted only those listed Islamic banks to tackle the data availability issue. The authors’ final sample comprised 136 observations with complete data as the numbers of Islamic banks in developing countries are low in comparison to their conventional peers. The financial crisis dummy follows America’s commonly used National Bureau of Economic Research timeline for the financial crisis. The authors also used the method of a generalized least square (GLS) method of pooled panel data analysis regression model. The rationale for employing the GLS technique was made on the basis of the ability of GLS to give less weight to the error term that is closely clustered around the mean, to improve the goodness of fit and to remove autocorrelation compared with normal, random, and fixed effect models.

Findings

The authors of this paper found that the macroeconomic factors reflected in gross domestic product, gross domestic product growth, and inflation rate have a significant positive relationship with the return on assets. In addition, a significant negative relationship was found between the financial dummy and IBP in developing countries. On the other hand, it failed to find evidence of a relationship between the macroeconomic factors and performance including the legal system and the financial crisis dummy, when the performance is reflected by the Zakat ratio. The result embedded that the financial crisis had an impact on the performance of Islamic banks in developing countries when viewed from the conventional banking perspective. The financial crisis played a role in reducing the profitability of Islamic banks which is consistent with a previous study by Hasan and Dridi (2011). However, in the view of Sharia, the financial crisis did not have any effect on IBP; even the macro factors did not have any effect on the level of performance.

Research limitations/implications

There are possible explanations for these contradictory coefficient signs. First, the contradictory signs of the coefficient for the same independent variable that was regressed with different dependent variables show that researchers would need to take caution in using the right indicators when measuring IBP. Conventional indicators bring different results in comparison to Islamic indicators (Badreldin, 2009; Mudiarasan. Kuppusamy, 2010; Zahra and Pearce, 1989). Second, Richard et al. (2009), having reviewed performance measurement-related publications in five of the leading management journals (722 articles between 2005 and 2007), suggested that the past studies reveal a multidimensional conceptualization of organizational performance with limited effectiveness of commonly accepted measurement practices. Accordingly, these studies call for more theoretically grounded research and debate for establishing which measures are appropriate in a given research context. Today, there is a general consensus that the old financial measures are still valid and relevant (Yip et al., 2009). However, these need to be balanced with more contemporary, intangible, and externally oriented measures. It has been argued that various researchers working in their own disciplines using functional performance measures (such as market share in marketing, schedule adherence in operations and so on) ought to link their discipline to focused performance measures of overall organizational performance.

Practical implications

Islamic banking has unique characteristics in comparison to conventional banking and this paper examines the differences between the two and also investigates the resilience of Islamic banks during a period of economic turbulence. Furthermore, due to these unique characteristics, a comparison cannot be made by using the conventional performance measures alone. In addition, amid the in-depth studies examining the resilience of Islamic banks during periods of economic crises, there are instances of theoretical disagreement in the extant empirical literature examining finance and economics. In that regard, the majority of the existing literature is either based on advanced markets or countries where the majority of the population practices the faith of Islam, and little is known about the performance of Islamic banking from the pooled emerging markets; particularly in developing countries.

Originality/value

Introducing Zakat as a performance measurement in Islamic banking context relating it to macroeconomic factors enhances the thinking of new research in Islamic theory about bank performance.

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Article
Publication date: 14 November 2016

Genanew Bekele, Reza H. Chowdhury and Ananth Rao

The purpose of this paper is to consider borrower-specific characteristics to understand the factors affecting both the probability and quantum of loan default by…

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1166

Abstract

Purpose

The purpose of this paper is to consider borrower-specific characteristics to understand the factors affecting both the probability and quantum of loan default by individual borrowers under Islamic and conventional banking.

Design/methodology/approach

Borrower-specific characteristics that explain the probability of default may not necessarily be similar factors that determine the quantum of default. The authors therefore apply a Box-Cox double hurdle model to treat both the probability and quantum of default in a two-step approach. The authors also explain the differences in default risk and quantum of default between Islamic and conventional banking borrowers from their behavioral perspectives following the Sharia principles in financial transactions between lenders and borrowers. The authors use borrower-specific information of two separate bank branches of the United Arab Emirates that solely deal with either Islamic or conventional banking products.

Findings

The paper demonstrates that the probability of default and the quantum of default appear to be influenced by different set of client-specific factors. The results suggest that the probability of default does not vary significantly between Islamic and conventional banking borrowers. The evidence also shows that Islamic banking defaulters, compared to those in conventional banking, repay a large quantum of overdue when their financial leverage improves. However, they do not tend to reduce their outstanding quantum of overdue faster than conventional banking defaulters.

Research limitations/implications

Availability of data from only two bank branches may limit the explanatory power of empirical findings.

Practical implications

The study findings will enable the Islamic and conventional banks to appropriately address Basel Capital requirements based on the borrowers’ behavior.

Social implications

The study findings have the potential for Islamic and conventional financing institutions to be more flexible with equity in their lending practices.

Originality/value

Religious beliefs are crucial in borrower’s default behavior in Islamic banking.

Details

Review of Behavioral Finance, vol. 8 no. 2
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 4 September 2017

Md Abu Saleh, Ali Quazi, Byron Keating and Sanjaya S. Gaur

Bank customers’ perceptions of service quality and service image of Islamic banks may differ from those of conventional banks. The purpose of this paper is to examine the…

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2034

Abstract

Purpose

Bank customers’ perceptions of service quality and service image of Islamic banks may differ from those of conventional banks. The purpose of this paper is to examine the differing perceptions of customers of Islamic and conventional banking systems in an emerging market, which has rarely been addressed and adds to the body of knowledge on this topic. This study also re-examines the SERVQUAL model of customer banking services to measure their impact on customer satisfaction and loyalty.

Design/methodology/approach

The study uses responses from a randomly drawn sample of 229 customers from conventional banks and 225 customers from Islamic banks operating in Bangladesh using a structured questionnaire. SPSS and structural equation modeling techniques were employed as statistical tools for data analysis.

Findings

Overall, the examined service quality dimensions wield varying effects on client satisfaction mediated through the perceived image of banking services. Islamic bank customers’ perceptions of the level of reliability, responsiveness, security and reputation were significantly higher than those of conventional banks.

Research limitations/implications

This study enhances our understanding of how Islamic banking practices differ from those of conventional banking in terms of service quality and image-related factors. More specifically, the findings of this research explain consumers’ perceived assessment of satisfaction and loyalty in a comparative research setting.

Originality/value

No prior studies have addressed the impact of the individual service quality dimensions on image factors in the context of conventional and Islamic banking in an emerging market, Bangladesh.

Details

International Journal of Bank Marketing, vol. 35 no. 6
Type: Research Article
ISSN: 0265-2323

Keywords

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