Heterogeneous Market Structure and Systemic Risk: Evidence from Dual Banking Systems

Abedifar, Pejman; Giudici, Paolo; Hashem, Shatha Qamhieh

doi:10.2139/ssrn.2926500

Cited by 14 publications

(15 citation statements)

References 51 publications

(18 reference statements)

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“…Second, a comparative analysis of competition and stability relationship is presented for Islamic and conventional banks operating alongside each other in dual banking system. Hence, this study we complement the works of Abedifar et al (2013), Abedifar et al (2017), Beck et al (2013), Hasan and Dridi (2011), Khan et al (2020) and Mollah and Zaman (2015). These studies provide comparative analyses of financial stability, risk management, performance, and efficiency between these two types of banks.…”

Section: Introductionmentioning

confidence: 87%

Bank Competition–Stability Relations in Pakistan: A Comparison between Islamic and Conventional Banks

Hassan¹,

Ijaz²,

Khan³

2021

IJBS

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This study comparatively analyses the financial stability of Islamic and conventional banks in Pakistan. Using data of 29 conventional and 9 Islamic banks over 18 years, the study first estimates bank competition and stability using Lerner index and Z-Score, respectively. Generalized least squares regression is used and the coefficients are estimated by using random-effects estimator. Results of the mean comparison show that Islamic banks carry more market power (less competition) and are more stable compared to their conventional counterparts. Results of a panel regression show that competition positively affects the stability of the banking sector and this effect is higher for Islamic banks due to their market power. Results also show that bank stability in Pakistan was reduced during global crisis period; however, presence of Islamic banks contributes to the stability even during crisis. Finally, this study supports the competition-stability hypothesis for Islamic banking in Pakistan. Recommendations are given at the end.

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Section: Introductionmentioning

confidence: 87%

Bank Competition–Stability Relations in Pakistan: A Comparison between Islamic and Conventional Banks

Hassan¹,

Ijaz²,

Khan³

2021

IJBS

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“…As most of the Islamic countries are trying to develop an Islamic financial system, our results provide important insights whether competition between FFIBs and Islamic window banks is linked with the individual bank performance as well as the financial system as a whole. Second, our study complements the works of Abedifar et al (2013), Beck et al (2013), Abedifar et al (2017) and Khan et al (2020). These studies presented a comparative analysis of competition and performance relationship for Islamic and conventional banks operating alongside each other in a dual banking system.…”

Section: Introductionmentioning

confidence: 85%

Competitive strategies-performance nexus and the mediating role of enterprise risk management practices: a multi-group analysis for fully fledged Islamic banks and conventional banks with Islamic window in Pakistan

Ali

Alasan

Khan

et al. 2021

IMEFM

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Purpose This paper aims to investigate whether the effect of competitive strategies on the performance is significantly different for fully fledged Islamic banks vis-a-vis conventional banks with Islamic window. Specifically, two competitive strategies namely the low-cost strategy and the differentiation strategy were considered. In addition, we examined further the competitive strategies–performance nexus by introducing enterprise risk management as a mediating factor. Design/methodology/approach This study used structured questionnaires to collect data from 506 respondents (251 from fully fledged Islamic banks and 255 from conventional banks with Islamic window). A disjoint two-stage approach was employed to analyze a hierarchical component model. Construct Level Correction and Measured Latent Marker Variable approaches were employed to assess the common method variance. As a robustness check, two-stage approach was used to explore the curvilinear relationship, and the Gaussian copula approach was adopted to address the endogeneity issue. Findings The findings show the evidence of complementary partial mediation in the relationships between low-cost strategy, differentiation strategy, and performance through enterprise risk management practices in both types of banks. Practical implications Competitive strategies are essential as they send signals to owners, managers, policymakers, and regulatory authorities. On the one hand, fully fledged Islamic banks face dual competition from pure conventional counterparts as well as conventional banks with Islamic window. On the other hand, Islamic window banks also face strong competition from the fully fledged Islamic banks due to their strong Shariah roots. Hence, this competitive pressure on both types of banks calls for more attention to focus on competitive strategies and enterprise risk management practices to accelerate their performance and overcome the bank risk. Moreover, these competitive strategies can be used as a tool to enter into a new market by reducing costs and risks. Besides, banks cannot achieve a competitive advantage without implementing enterprise risk management practices because competitive strategies are significant antecedents of enterprise risk management practices. Therefore, this study recommends both types of banks to focus on enterprise risk management practices to make these strategies successful. Originality/value To the best of our knowledge, this is the first study to examine the competitive strategies–performance nexus and the mediating role of enterprise risk management practices in an unexplored area of Islamic banking.

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“…This study contributes to the literature in two ways. First, it extends the broad literature on risk in Islamic banking (Abedifar et al, 2013;Beck et al, 2013;Mollah et al, 2015;Abedifar et al, 2017;Khan et al, 2020), by investigating how the risk-taking of Islamic banks is differently affected by corruption compared to their conventional counterparts. Specifically, this study examines the role of SSBs as a channel to moderate the effect of corruption on the risk-taking of Islamic banks.…”

Section: Introductionmentioning

confidence: 89%

“…Therefore, the LLPs and NPLs both backward-looking proxies for credit risk are also used. These three proxies are widely used in the literature as accounting-based credit risk indicators (for example, Sila et al, 2016;Abedifar et al, 2017;.…”

Section: Alternative Measures Of Bank Riskmentioning

confidence: 99%

Corruption and bank risk-taking: The deterring role of Shari’ah supervision

et al. 2021

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This paper investigates whether the risk-taking of Islamic banks is differently affected by corruption compared to conventional banks. Indeed, the presence of Shari'ah supervisory boards (SSBs), as a cornerstone of Islamic banking, is expected to deter the influence of corruption on risk-taking for Islamic banks. We consider a matched sample of 70 Islamic and conventional banks operating in 10 OIC (Organization of Islamic Cooperation) countries over the 2012-2017 period.We find consistent evidence that higher levels of corruption are associated with higher bank risk for both conventional and Islamic banks. However, this association is stronger for conventional banks. Furthermore, for Islamic banks, the impact of corruption on risk-taking is significantly reduced with higher representation of females in Shari'ah supervisory boards and higher academic qualifications of board members. The role played by such board members in mitigating the impact of corruption on risk-taking is more effective for Islamic banks than for conventional banks.

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Heterogeneous Market Structure and Systemic Risk: Evidence from Dual Banking Systems

Cited by 14 publications

References 51 publications

Bank Competition–Stability Relations in Pakistan: A Comparison between Islamic and Conventional Banks

Bank Competition–Stability Relations in Pakistan: A Comparison between Islamic and Conventional Banks

Competitive strategies-performance nexus and the mediating role of enterprise risk management practices: a multi-group analysis for fully fledged Islamic banks and conventional banks with Islamic window in Pakistan

Corruption and bank risk-taking: The deterring role of Shari’ah supervision

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