Competition between conventional and Islamic banks in Malaysia revisited
Purpose – This paper aims to assess the nature of competition between conventional and Islamic banks operating in Malaysia. It is an effort to enrich the existing literature by offering an empirical compromise on the differences in the results of studies related to competition between the two type...
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| Main Authors: | , , |
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| Format: | Article |
| Language: | en en |
| Published: |
Emerald Group Publishing Ltd.
2020
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/83082/2/83082_Competition%20between%20conventional%20and%20Islamic%20banks.scopus.pdf http://irep.iium.edu.my/83082/9/83082_Competition%20between%20conventional%20and%20Islamic%20banks_SCOPUS.pdf http://irep.iium.edu.my/83082/ https://www.emerald.com/insight/content/doi/10.1108/JIABR-09-2019-0176/full/pdf?title=competition-between-conventional-and-islamic-banks-in-malaysia-revisited |
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| Summary: | Purpose – This paper aims to assess the nature of competition between conventional and Islamic banks
operating in Malaysia. It is an effort to enrich the existing literature by offering an empirical compromise on
the differences in the results of studies related to competition between the two types of banks.
Design/methodology/approach – Secondary data on all banks operating in Malaysia’s diversified
banking sector is collected from the FitchConnect database for the period 2011-2017. A non-structural
measure of competition (H-statistic) as informed by Panzar–Rosse is used to measure the competition between
conventional and Islamic banks. Panel data analysis techniques are used to estimate H-statistic. Wald test for
the market structure of perfect competition/monopoly is used to affirm the validity and consistency of the
results.
Findings – The findings of this study signify that the Malaysian banking sector operated under
monopolistic competition during the period of study. The long-run equilibrium condition holds for the
Malaysian banking sector. Competition among conventional banks is more intense than that among Islamic
banks. Financial reform endeavours of Bank Negara Malaysia (BNM) along with the liberalisation wave of the
financial system were successful in promoting competition, rendering the financial system contestable,
resilient and dynamic.
Practical implications – Regulators and policymakers may find the results beneficial in terms of
rethinking the number of banks operating in the Islamic sector. The number of banks, however, is not the only
determinant of competition in the banking sector. Implications of competition change for stability and risktaking behaviour of banks should be considered.
Originality/value – Within the context of Malaysia’s diversified banking system, given the contradictory
results reported in studies on competition, this study is an effort to provide a plausible middle ground. It
suggests a possible answer as to why competition nature has not changed since the policy change initiatives
of BNM, namely, banks merger, expansion of Islamic banking operation scope and liberalisation process. |
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