A contemporary survey of islamic banking literature

The purpose of this study is to examine the effect of market power and income diversification on the General Bank stability in Indonesia. This research uses a data sample of 20 general banks listed on the Indonesia Stock Exchange for the period of 2011–2014. Data analysis technique used is Multiple Linear Regression. It can be concluded simultaneously that market power and revenue diversification have significant effect on bank stability and, partially, market power has a positive and significant effect on a bank stability. Income diversification has a positive non-significant effect on bank stability. Syahyunan (Indonesia), Iskandar Muda (Indonesia), Hasan Sakti Siregar (Indonesia), Isfenti Sadalia (Indonesia), Gerry Chandra (Indonesia) BUSINESS PERSPECTIVES LLC “СPС “Business Perspectives” Hryhorii Skovoroda lane, 10, Sumy, 40022, Ukraine www.businessperspectives.org THE EFFECT OF LERNER INDEX AND INCOME DIVERSIFICATION

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The effect of Lerner Index and income diversification on the general bank stability in Indonesia

Purpose




The purpose of this paper is to examine the competitive conditions and market power of Islamic banks in Indonesia for the period of 2006-2013.




Design/methodology/approach




Using samples of 27 Islamic banks, the study uses a variety of structural and non-structural measures related to the traditional approach and the new empirical approach of the industrial organization. The methodology is based on a set of measures of the competition and market power. The first measures, concentration ratios and Herfindahl–Hirschman index, are to determine the competitiveness level, while the second measures of Panzar–Rosse H-statistic and Lerner index are to examine the market power of Islamic banks in Indonesia.




Findings




The finding of this study has confirmed the situation of Islamic banking industry in Indonesia which is operated in a higher degree of market power which leads to a less competitive market. Islamic banks earn their revenues under monopolistic competition over the tested period. This study has also found a negative but insignificant relationship between concentration and competition which shows that in the past few years, the market power for leading firms in Indonesia Islamic banking industry has reduced.




Practical implications




The paper is a very useful source of information that may provide relevant guidelines in guiding the future development of competition of Islamic Banking industry. In addition, the paper provides relevant guidelines for improving competitiveness of Islamic banks.




Originality/value




This study combines two approaches for bank competition measurement and bank market powers measurement which can provide more robust findings. To the best of the authors’ knowledge, the study on Islamic banking competitiveness level and market power is very limited, especially in the case of Indonesia. Therefore, this study could contribute significantly toward the literature of the related field.

Competitive condition and market power of Islamic banks in Indonesia

This paper examines the relationship between bank structure, performance and competition in the South African banking industry. South Africa has a very concentrated banking industry with a C4 concentration ratio of over 80%. The structure conduct performance hypothesis would suggest that competition in the sector would therefore be very low. We apply the Panzar-Rosse approach to bank level data for the period 1997 to 2014 to assess the competitive environment in the South African banking industry. We estimate a revenue equation to obtain the H statistic. Changes in competition over the sample period are explored by estimating a time varying Panzar-Rosse H statistic. This also allows us to assume a gradual change in bank competition rather than a static equilibrium. We find that competition has increased over time. This result is consistent no matter how the time variable enters the revenue equation. The estimated H statistic suggests that banks operate in a monopolistically competitive market structure. Bank specific factors are generally consistent across alternative measures and in line with expectations. We also find that the increased concentration arising from the currency crisis in 2001/02 does not reduce the level of competition. This result is somewhat puzzling because the industry exhibits relatively high transactions fees in the larger banks

Market Structure and Competition in the South African Banking Sector

This study aims to analyse three main questions within the Malaysian banking system: Are Islamic banks more competitive than conventional banks? What are the levels of competition for Islamic and conventional banking sectors pre, during and post the 2007-2009 global financial crisis? Does penetration of Islamic banks affect the competitive structure of conventional banks?,In measuring a bank competition, the author estimates the Panzar–Rosse H-statistic (PRH) method on 17 Islamic and 21 conventional banks in Malaysia over the period of 2004-2013. This is then followed by ordinary least squares (OLS) robust regression analysis to control Islamic banks’ penetration, bank-specific and macroeconomic factors.,Results from the PRH method (total revenue) suggest that Malaysian Islamic banks are relatively more competitive than their conventional counterparts. Furthermore, the author observes that the level of competition for both Malaysian Islamic and conventional banks increased tremendously during the 2007-2009 global financial crisis. This suggests the impact of the crisis on the level of competition for both banking systems. Finally, the OLS robust regression suggests that Islamic banks’ penetration has a significantly positive impact on the level of competition for conventional banks. The PRH estimation using total interest income indicates similar results, suggesting the robustness of these results.,This study reveals whether Islamic banks’ penetration is able to increase the level of competition within the conventional banking sector. Knowledge on this is important to the policymaker.,To the best of the author’s knowledge, this is the first study using the PRH method in comparing the level of competition for Malaysian Islamic and conventional banks. Furthermore, this is the first study analysing the impact of Malaysian Islamic banks’ penetration on the level of competition for conventional banks.

Comparing the competition of Malaysia Islamic and conventional banks: Evidence surrounding the global financial crisis

Purpose – The expansion of the Islamic banking industry seems to accentuate the banking competition in MENA and Southeast Asia where conventional and Islamic banks coexist. In this context, the research aims\ to examine the competitive conditions and the market power of the conventional and Islamic banks during the period 2004-2009 in MENA and Southeast Asia region. Design/methodology/approach – The authors use a variety of structural and non-structural measures related to the traditional approach and the new empirical approach of the industrial organization. The methodology is based on set of measures of the competition and market power. The first measure is a set of concentration ratios (C3, C5) and Herfindahl-Hirschman index (HHI). The second measures are the Panzar and Ross H statistic and the Lerner index based on econometric estimations with the aim of evaluating the structure of market and measuring its power in terms of price setting. Findings – The results indicate that under the HHI index, both ...

Safa Kachtouli

Papers

Competitive conditions and market power of Islamic and conventional commercial banks