Performance comparison of Islamic (participation) banks and commercial banks in Turkish banking sector

Abstract

Purpose – The purpose of this paper is to attempt to compare the performance of Islamic banks against conventional banks in Turkey. This comparison is much more distinctive and significant in Turkey when compared to other countries, as Turkey stands as a model for the world in interest-free banking system. Design/methodology/approach – The comparative performance analysis was conducted by means of logistic regression method during the period of 2001-2009. The CAMELS approach is utilized to assess the managerial and financial performance of banks. Findings – The results signify that Islamic banks operating in Turkey perform better in profitability and asset management ratios compared to conventional banks but lag in sensitivity to market risk criterion. These findings might mainly be ascribed to the fact that these banks allow lower provisional losses compared to conventional banks and have some tax advantages. Research limitations/implications – Utilizing a more recent and consistent data set, the analyses could be replicated to determine if the results are subject to any sample bias. Practical implications – These finding reveal significant implications for potential entrants into Turkish banking sector particularly for foreign investors. Social implications – The findings from this study may reinforce the awareness and confidence in participating banks in Turkey. Originality/value – Turkey is particularly interesting to conduct this analysis because Turkey is a Muslim but secular country and both Islamic and conventional banks are subject to same set of banking regulations which are based on Western traditional banking system. Furthermore, to the knowledge, there is not a comprehensive study that compares the performance of conventional and Islamic banks in a Western banking system.

Islamic Banks vs Conventional Banks in Indonesia: An Analysis on Financial Performances

“…Other studies have shown conflicting results on this matter. Saifullah (2010), Rozzani and Rahman (2013), Erol et al (2014), Hadriche (2015), and Khediri et al (2015) suggest that Islamic banks are more profitable; while that is not the case by studies done by Fayed (2012), and Wasiuzzaman and Gunasegavan (2013) Samad (2004) discussed the performance of Islamic banks and conventional banks in Bahrain after the first Gulf War in 1991. Comparative financial measure is expressed by using various financial ratios and they indicate that there is no significant difference in the profitability and liquidity between Islamic banks and conventional banks.…”

An Investigation of the Performance of Islamic and Interest Based Banking Evidence from Pakistan

“…The result shows that Islamic banks in Iran are more profitable than conventional banks in Turkey. In addition Erol et al (2014) investigates the comparison of the performance of Islamic banks and conventional banks in Turkey. The aims of this study to analyses the performance of the Islamic banks and conventional banks in Turkey in terms of Profitability and asset management.…”

Customers’ Attitude Towards Islamic and Conventional Bank: A Glimpse From Hyderabad, Pakistan.

“…Literature Review:- Erol et al (2014) conducted a study to compare the performance of the Islamic banks within Turkish context. Erol et al (2014) reported that Islamic banks are performing better than commercial banks.…”

“…Erol et al (2014) reported that Islamic banks are performing better than commercial banks. However, Riaz et al (2014) noted that Islamic banks have not fully adopted Islamic principles within Pakistani context.…”