Competitive conditions in Islamic and conventional banking: A global perspective

Abstract

I analyze the competitive conditions prevailing in Islamic and conventional global banking markets, and investigate the possible differences in profitability between these markets, using a sample of banks across 13 countries during 2000-2006. The results suggest that Islamic banks allocate a greater share of their assets to financing activities compared to conventional banks, and they are also better capitalized. Different computed measures of competition indicate that Islamic banking is less competitive compared to conventional banking.A second-stage analysis shows that profitability significantly increases with market power, but this does not warrant higher profitability levels for Islamic banks.

Financial Distress–Detection Model for Islamic Banks

“…In addition, [13] also found that the profitability of the IBs significantly increased with market power, though this did not warrant higher profitability levels for the IBs.…”

“…However, IBs have been proven to be able to stay competitive with other CBs [13] in which the IBs allocated a greater share of their assets to financing activities compared to the CBs and that they were also better capitalised. In addition, [13] also found that the profitability of the IBs significantly increased with market power, though this did not warrant higher profitability levels for the IBs.…”

“…However, in IBs are competing with each other and give extra attention in providing the Islamic Financial Products. These IBs have a follow-customer strategy, even if that means earning losses in a particular market [13]. They participate in the IBs' segment so that they could better serve their customers in this region and to stay competitive in the industry.…”

Global Financial Crisis and Islamic Financial Products

“…Khan (2010) investigates those features and questions to what extent Islamic banking and finance lives up to the ethical and moral practices of it and how different it is from conventional banking. Ariss (2010), analyzes Islamic and conventional banks across 13 countries for years between 2000 and 2006. She concluds that though it is less competitive, Islamic banking enables higher allocation of assets to the financing of projects by being better capitalized.…”

Market Power in the Czech Banking Sector

“…When P = MC, the Lerner index is zero and the firm has no pricing power. A Lerner index closer to one indicates the higher mark-up of price over marginal costs and hence market power for the firm (Ariss, 2010). In general, LI = 0 it indicates perfect competition, while LI = 1 indicates monopoly.…”