Reality of short-term causality of Islamic and conventional banking term deposit rates in Pakistan

Abstract

Purpose The purpose of this study is to find the empirical causal relationship between Islamic bank term deposit rates (IBTDR) and conventional bank term deposit rates (CBTDR) in the short-term. Design/methodology/approach This study analyzes the short-term causal relationship between the term deposit rates (TDRs) for the time period of three years 2015 to 2018 on monthly data of IBTDR and CBTDR. Granger causality test, variance decomposition and impulse response function are applied to examine if there is any short-term causal relationship between the IBTDR and CBTDR. Findings This empirical study establishes that the IBTDR are dependent on the CBTDR in the short-term. Practical implications This research provides an insight for the customers of TDRs of the Islamic banking system. This study is not only a significant insight for the end-users but also for the regulators and researchers as it provides important empirical evidence. This could lead to further research on the reasons for causality. Originality/value There has not been any study of this nature in Pakistan to identify the causality of the two-TDRs. This research expands the dynamics of research in the context of the banking sector.

Disclosure, Shariah governance and financial performance in Islamic banks

“…Islamic banks (IBs) and conventional banks (CBs) live up to the clients' desires for long-haul benefits. However, based on RIBA and risk-sharing practices, they are different (Mushafiq and Sehar, 2021). IBs are the highest proportion of the Islamic financial institutions (IFIs) that extend locally and internationally across both Muslim and Western countries (Sarea and Hanefah, 2013).…”

Factors Influencing the Amount of Mudarabah Savings Deposit in Public Sharia Banks

“…Assertively, Beck et al (2012) dan El-Gamal (2005) argue that the rate of profit and loss sharing in sharia deposits follows the conventional bank's deposit interest rate. Similarly, Chong & Liu (2009), Erdogan et al (2020), Mushafiq & Sehar (2021), dan Suyyinah (2018) suggest that conventional bank's deposit interest rate and sharia bank's deposit have cointegration relationship. Meanwhile, exchange rate is thought to normally affect since it is needed in export and import transactions.…”

İslami Bankacılık Konvansiyonel Bankacılık Üzerinde Etkili mi? Türkiye Örneği Üzerinden Bir Nedensellik Analizi

“…The aim of these studies is to reveal the relationship between the interest rates of conventional banks and the profit rates of participation banks. As an example of these; Kaleem and Isa (2003); Chong and Liu (2009);Ito (2013); Rauf and Malik (2014); Yusof et al (2015); Lee et al (2017); Mohd Yusoff and Azha (2019); Mushafiq and Sehar (2021); Liaqat et al (2021); Saeed et al (2021) studies can be given. Studies dealing with the impact of Islamic banks on the entire banking sector and on conventional banks in particular are very few in the literature, and the literature should be supported with new studies.…”