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Competition, Panzar–Rosse model, Malaysia, Market structure, G21, D24, L1,

The study examines the impact of economic freedom on Islamic banks' profitability in the Middle East and North Africa (MENA) banking sectors during the period 2000-2010 using dynamic panel model. The findings suggest that greater financial freedom positively influences the profitability of Islamic banks in the MENA banking sectors, implying that lower intervention in the system increases Islamic banks' profitability. Furthermore, the larger, more diversified and better-capitalized Islamic banks are relatively more profitable, while credit risk and expenses preference behaviour negatively impact on Islamic bank profitability as expected.

Purpose This paper aims to examine the distributional differences of Islamic bank financing responses to financing rate across bank-specific characteristics in dual banking system. The study also aims to provide understanding of how efficiently Islamic banks perform their roles as suppliers of capital for businesses and entrepreneurs. Design/methodology/approach The study uses panel regression methodology covering all Islamic banks in Malaysia. The study estimates the benchmark model for Islamic bank financing with respect to bank characteristics and monetary policy. Findings The evidence suggests that bank-specific characteristics are important in determining Islamic financing behaviour. The Islamic financing behaviour is consistent with conventional lending behaviour that the Islamic bank financing operates depending on the level of bank size, liquidity and capital. There is no significant difference between Islamic bank financing and conventional bank lending behaviour with respect to changes in monetary policy. Originality/value Many problems and challenges relating to Islamic financing instruments, financial markets and regulations must be addressed and resolved. In practice, it would be a good idea if Islamic banks move away from developing debt-based instruments and concentrate more efforts to develop profit and loss sharing instruments.