Competition, diversification and performance in dual banking: a panel VAR analysis

Abstract

This article investigates the dynamic relationship among competition, diversification and bank performance using data for 18 countries with a dual banking system over the period 2000 to 2016. Analyses using panel vector autoregression (P.V.A.R.) model, impulse response function (I.R.F.) and variance decomposition (V.D.C.) methods confirm that market power increases the profitability and the stability of banks the dual banking system while revenue diversification reduces them. Market power increases revenue diversification of banks. Segregating the sample of banks into emerging and developing countries, we find that positive impact of market power on profitability is stronger for emerging countries. Even though we find that revenue diversification has a more damaging effect on the profitability of banks in the developing countries, it only dampens the stability of banks in emerging countries. In addition, we find that asset diversification dampens the stability of banks. However, it has a more positive impact on the profitability of banks in emerging economies.

The Performance of Indonesian Islamic Rural Banks During Covid-19 Outbreak: The Role of Diversification

“…Islamic banks should pay more attention to non-financing sources of income such as investments and other income that do not violate sharia rules (Le et al, 2022). Sahul Hamid and Ibrahim (2021) also find a significant impact of diversification on the performance of the dual banking system. Interestingly, diversification can damage the profitability of the dual banking system in developing countries but not emerging countries.…”

Indicators of Non-Performing Loan: Does Efficiency Matter?

“…In the earlier studies, return on asset was considered essential for banks and other loanproviding institutions (Alzahrani & Alfares, 2021;Bhattarai, 2018;Edi & Wijaya, 2022;Pereira et al, 2022;Ramachann et al, 2022;Service, 2021;Wynn, 2021), because the survival of these institutions is directly dependent on return on asset. In this regard, the banks' management should ensure that the loans provided by the banks are appropriate as they can be returned safely to the owners (Hamid & Ibrahim, 2021;Partovi & Matousek, 2019;Petkovski et al, 2018; Pilinkienė et al, 2021;Qin et al, 2021;Ribaudo, 2020;Sell, 2020;Tetrevova et al, 2021). Indeed, in America and United Kingdom the banks are working with strict laws related to return on investment and if the people are not willing to pay the banks (Farooq et al, 2019;Sigurdsson et al, 2021;Wang et al, 2020), the administration takes strict actions against the defaulters.…”

Geleneksel Bankalarin Kredi̇leri̇ Katilim Bankalarinin Kredi̇leri̇ni̇ Dişliyor Mu?

“…wrote that macro prudential policies came to the fore in countries implementing Islamic finance, especially after the 2008 crisis. Hamid & Ibrahim (2020) employing panel vector autoregression models on 18 countries between the period 2000 to 2016 documented that that market power increases stability and profitability in dual banking system. Maghyereh & Yamani (2022) reported that the covid-19 pandemic affected conventional and Islamic banks equally in terms of systematic risk.…”