The dependency of Islamic bank rates on conventional bank interest rates: further evidence from Turkey

Saraç, Mehmet; Zeren, Feyyaz

doi:10.1080/00036846.2014.978076

Cited by 45 publications

(40 citation statements)

References 9 publications

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“…All in all, while previous studies (e.g. Charap and Cevik (2011), Chong and Liu (2009), Saraç and Zeren (2014)) argue that the correlation between deposit rates of conventional and Islamic banks indicate that both types of finance do no significantly differ, our results provide evidence of significant differences in the way IBs and CBs set their deposit rate.…”

Section: Baseline Regressioncontrasting

confidence: 69%

“…Moreover, the authors find that conventional banks' deposit rates Granger cause returns on PLS accounts. Saraç and Zeren (2014) confirm such results and highlight a strong dependency between the deposit rates of Islamic and conventional banks in Turkey. Moreover, they also find evidence of bi-directional causality thereby highlighting more complex interactions between both types of banks than in earlier studies.…”

Section: Introductionsupporting

confidence: 73%

“…If Islamic and conventional banks are not viewed as very different institutions(Beck et al, 2013;Charap and Cevik, 2011;Chong and Liu, 2009;Saraç and Zeren, 2014), Islamic banks are expected to follow conventional banks in increasing their deposit rates to attract customers.…”

mentioning

confidence: 99%

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Dual market competition and deposit rate setting in Islamic and conventional banks

2017

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This paper addresses the issue of competition in dual banking markets by analyzing the determinants of deposit rates in Islamic and conventional banks. Using a sample of 20 countries with dual banking systems over the 2000-2014 period, our results show significant differences in the drivers of Islamic and conventional banks' pricing behavior. Conventional banks with stronger market power set lower deposit rates but market power is not significant for Islamic banks. In predominantly Muslim environments, conventional banks set higher deposit rates and further higher when their market power is lower. Whereas conventional banks are influenced by the competitiveness of Islamic banks, Islamic banks are only affected by their peers in predominantly Muslim countries. Our findings have important implications regarding competition and bank stability in dual banking markets.

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Section: Baseline Regressioncontrasting

confidence: 69%

Section: Introductionsupporting

confidence: 73%

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Dual market competition and deposit rate setting in Islamic and conventional banks

2017

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“…For instance, (Charap and Cevik, 2015;Chong and Liu, 2009;Ito, 2013;Saraç and Zeren, 2014) highlight that a higher presence of Islamic banks in banking sectors tends to weaken Islamic banks' own stability. As a response to the competitive pressure of conventional banks, other studies show that Islamic banks adjust their rates of deposit for the sake of competition (Abedifar et al, 2016).…”

Section: Baseline Regressionmentioning

confidence: 99%

Competition in Dual Markets: Implications for Banking System Stability

2018

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This paper examines the impact of market competition on the stability of Islamic and conventional banks in countries where these banks operate alongside one another. To investigate this issue, we use a sample of 100 Islamic and 390 conventional banks from 19 countries. Our baseline result shows that competition in a dual market erodes banks' stability.The heightened competitive pressure in a dual market encourages banks to engage in excessive risk-taking that can jeopardize their stability. However, the effect of competition is missing for Islamic banks, suggesting their superiority in having religious clients. Although our overall results support the 'competition-fragility' hypothesis, we find that competition can be beneficial for banks, especially at a low to medium competition level. Last, we also find that the adverse impact of competition can be reduced by having high capitalization, especially in the case of a conventional bank. Some policy implications are discussed in the paper. JEL Classifications: D40; G21; G28; Z12

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“…5 There are also concerns that Islamic banks face interest rate risk (Chong and Liu, 2009;Sukmana and Kassim, 2010;Ergeç and Arslan, 2013;Saraç and Zeren, 2015). Kassim et al (2009) revealed that Islamic banks are more sensitive to monetary policy changes than its conventional counterparts in a dual banking system as in Malaysia.…”

Section: Introductionmentioning

confidence: 99%