Efficiency and total factor productivity change of Malaysian commercial banks

This paper analyses the efficiency of Malaysian commercial banks between 1996 and 2002 and finds that while the East Asian financial crisis caused a short-term increase in efficiency in 1998 primarily due to cost-cutting, increases in non-performing loans after the crisis caused a more sustained decline in bank efficiency. It is also found that mergers, fully Islamic banks, and conventional banks operating Islamic banking windows are all associated with lower efficiency. The paper estimates suggest mild decreasing returns to scale, and an average productivity change of 2.37% that is primarily attributable to technical change, which has nonetheless declined over time. Finally, while Islamic banks have been moderately successful in developing new products and technologies, the results suggest that the potential for Islamic banks to overcome their relative inefficiency is limited.     

Bank lending,deposits and risk-taking in times of crisis: A panel analysis of Islamic and conventional banks

In this study, we conduct a panel analysis of Islamic and conventional banks to ascertain whether Islamic banks are able to sustain financing supply and whether its growth is higher than conventional bank lending growth in times of stress. For concreteness, we also assess whether the sustained financing supply of Islamic banks is justified by a concomitant increase in Islamic deposit growth and is not linked to excessive risk taking. Utilizing a panel sample of 25 Islamic banks and 114 conventional banks from 10 dual-banking countries, we observe sustained financing supply by Islamic banks but significant reduction in the lending growth by conventional banks during the crisis period. The results further suggest that the financing growth of Islamic banks is higher than the lending growth of conventional banks during the crisis period. However, we find no clear evidence that the deposit growth of Islamic banks behaves differently during the period. Finally, there is no indication to suggest that Islamic banks exhibit excessive risk taking in times of stress. Our results contribute to the evidence supporting the contributive role of the Islamic banking system to financial and economic stability.     

Liberalisation,privatisation and the productivity of Egyptian banks: a non-parametric approach

This paper evaluates the performance of Egyptian banks during a period characterised by changes in economic policies. The Egyptian government's liberalisation policies in the early 1990s have had a positive or negative impact on the performance of the Egyptian banks. In addition, whether the liberalisation impact has influenced different forms of banks' ownership and sizes with consistent magnitude is examined. Another objective of this paper is to examine the impact of the privatisation process at the end of 1995 on the efficiency and productivity performance of the overall banking sector and on joint-venture banks in particular. The data envelopment analysis Malmquist methodology is employed to estimate the productivity of Egyptian banks.     

Banks' Efficiency and Stock Prices in Emerging Markets: Evidence from Malaysia

ABSTRACT

This paper empirically investigates the X-efficiency and P-efficiencies of Malaysian banks listed in the Kuala Lumpur Stock Exchange (KLSE) during 2002–2003 by applying a non-parametric Data Envelopment Analysis (DEA) method. We find that during the period of study, the X-efficiency of Malaysian listed banks was on average significantly higher compared to the P-efficiencies. The P-inefficiency was largely due to inefficient production of profits rather than the wrong scale of operations. Our results also suggest that the large banking groups were on average more X-efficient whereas the smaller banking groups were found to be more P-efficient. We further link the X-efficiency and P-efficiency to the respective banks' share prices and find that the stock prices of Malaysian banks react more towards the improvements in P-efficiency rather than the improvements in X-efficiency.     

Islamic financing and bank risks: The case of Malaysia

We examine whether Islamic financing can explain three important bank risks in a country with a dual banking system: credit risk, interest‐rate risk, and liquidity risk. Using Malaysian data, we find that commercial banks with Islamic financing have significantly lower credit and liquidity risks but significantly higher interest‐rate risk than banks without Islamic financing. There is also evidence that bank size is significantly related to credit risk; the proportion of loan sales to total liabilities and bank size are significant determinants of interest‐rate risk; and off‐balance‐sheet financing, the extent of securitization, loan volatility, bank capital, and bank size are statistically significantly related to liquidity risk. © 2005 Wiley Periodicals, Inc.     

Systemic risk,Islamic banks,and the COVID-19 pandemic: An empirical investigation

While operating side-by-side with conventional banks, in a dual-banking system, the systemic risk profile of Islamic banks can be different due to their unique business model. The objective of this study is to understand the evolution of systemic risk in dual-banking systems and determine whether there are any differences in the systemic risk profiles of conventional and Islamic banks during the COVID-19 pandemic. This study also identifies the determinants of systemic importance (measured using spillover indices) of financial institutions. The sample includes ten countries where the Islamic banking sector is considered systemically important and covers the period from November 2015 to November 2020. The empirical results indicate a significant increase in systemic risk, in the sample countries, during the first half which is followed by a recovery in the second half of 2020. Comparative analysis shows that Islamic banks have similar systemic vulnerabilities to systematic and idiosyncratic factors during the exogenously induced real economic shock of the COVID-19. However, Islamic banks pose significantly less spillover to others relative to conventional banks while earning abnormal returns. The results are robust to the inclusion of macroeconomic factors and alternate estimation methodologies. The findings of this study provide valuable insights for the regulators of dual-banking systems.     

Customer-driven philosophy in the banking industry under different ownership status: the case of Greece

Relationship banking (RB) philosophy has become a topic of increasing importance in strategic marketing management. RB concerns inter alia the applying of customer-driven strategies using advanced information technology. This study investigates RB in the Greek banking industry overall and also under different ownership status (privately owned vs. stated-controlled vs. foreign banks). Based on a wide field of research during the period 2005–2006, indeed, we find that banks in Greece apply the philosophy of RB; however, privately owned and foreign banks implement RB strategies more systematically and effectively in comparison with state-controlled banks. The usefulness of our results is twofold: they satisfactorily justify the considerable growth of the private banking sector in the Greek economy and significantly enrich the service-profit chain of this specific industry.     

The determinants of Islamic bank capital decisions

We report new evidence on the bank and institutional determinants of Islamic bank capital ratios in 28 countries between 1999 and 2013. Overall, we find that smaller, more profitable, and highly liquid Islamic banks are more highly capitalized. Additionally, improvements in the economic and financial environments and market discipline within a country correspond with higher Islamic bank capitalization. The results shed light on the impact that Sharia'a law restrictions have on Islamic banking capitalization. Our findings are most robust to banks that choose to hold capital well in excess of that required by regulators, consistent with traditional capital structure theory. Our results highlight the role that stable economic and political systems play in improving bank capitalization and reducing financial sector risk. By reducing political instability and corruption, improving legal systems, and encouraging access to capital markets, policymakers may incentivize managers to make financing decisions that increase the capitalization of the Islamic banking industry in developing countries.     

Commercial Bank Lending to SMEs in Poland

This paper explores the processes of financial intermediation that are used by commercial banks in their interactions with SMEs in Poland. The paper develops an argument for examining the empirical realities of commercial bank involvement with the SME sector within the context of economic transformation by suggesting that the connection between them influences the trajectories of economic change within transition. The paper provides a history of re-organisation of the commercial banking sector in Poland, paying particular attention to the involvement of foreign capital and foreign banks as the trend towards increasing foreign participation is apparent in the Central European transition economies. The findings from this research suggest that there are some significant variations within the commercial banking sector in the approach to, and practices for, lending to the SME sector.     

Technical Efficiency of the Ghanaian Banking Industry and the Effects of the Entry of Foreign Banks

The effects of the entry of foreign banks and changes in bank concentration on the technical efficiency of domestic banks in Ghana over the period 2000–2008 is analyzed. Technical efficiency scores were obtained by the Data Envelopment Analysis. Then, the Tobit regression was used to analyze the impact of hypothesized explanatory variables on bank efficiency. Foreign bank share of total industry assets was used to proxy the impact of foreign banks. The findings suggest that efficiency of domestic banks has been positively affected by the entry of foreign banks and reduction in concentration. Thus, the central bank's policy of liberalizing the banking sector appears to be well placed.     

Foreign banking in developing countries; origin matters

Driven by globalization and increased financial integration, the last decade has seen many foreign banks entering developing countries. Although the majority of these banks are from high-income countries, recently banks from developing countries have followed suit. This paper looks at this phenomenon, by examining the differences and similarities between developing and high-income country foreign banks. Using a large dataset on banking sector FDI in developing countries, we find that 27% of all foreign banks in developing countries are owned by a bank from another developing country, while these banks hold 5%of the foreign assets. The importance of developing country foreign banks is much larger in low-income countries (both in number of banks and in terms of assets) and this type of foreign banking is strongly regionally concentrated. Although foreign bank entry by both developing country as well as high-income country banks seems to be driven by economic integration, common language and proximity, banks from developing countries are more likely to invest in small developing countries with weak institutions where high-income country banks are reluctant to go. This result seems to suggest that developing country banks have a competitive advantage dealing with countries with a weak institutional climate. Furthermore, our results indicate that developing country foreign banks have a higher interest margin and are less profitable than foreign banks from high-income countries.     

Determinants of efficiency in South East Asian banking

This paper explores the efficiency of banks in five South East Asian countries (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) using the non-parametric data envelopment approach and Tobit regression. The results indicate that efficiency has significantly declined over the period 1998–2004 indicating that the post-1997 crisis restructuring had a negative influence on bank performance. In line with the established literature on emerging markets, foreign banks appear to be more efficient than the domestic counterparts. However, state-owned banks exhibited greater efficiency than their local private sector peers. Among country-level factors, national banking development shows a strong and positive link with bank efficiency. The results are robust to different assumptions of bank inputs, outputs, technological changes, and national banking convergence.     

The influence of bank ownership on credit supply: Evidence from the recent financial crisis

This study examines how bank ownership influenced the credit supply during the recent financial crisis in Russia, where the banking sector consists of a mix of state-controlled banks, foreign-owned banks, and domestic private banks. To estimate credit supply changes, we apply an original approach based on stochastic frontier analysis. We use quarterly data for Russian banks covering the period from the beginning of 2007 to the end of 2009. Our findings suggest that bank ownership affected credit supply during the financial crisis and that the crisis led to an overall decrease in the credit supply. Relative to domestic private banks foreign-owned banks reduced their credit supply more and state-controlled banks less. This supports the hypothesis that foreign banks have a “lack of loyalty” to domestic actors during a crisis, as well as the view that an objective function of state-controlled banks leads them to support the economy during economic downturns.     

Problems and challenges facing the islamic banking system in the west: The case of the UK

This study investigates the main problems, challenges, and opportunities facing Islamic banking in the United Kingdom. The study reports the results of interviews that were undertaken with senior officials of several key financial institutions who have had many years of experience in dealing with Islamic banking. Our interviews revealed that, although by strict definition Islamic banks do not currently exist in the UK, London is one of the major centers for Islamic banking and finance. It is apparent that the experience of previously established Islamic institutions, such as Al‐Baraka, has made other institutions realize that it is possible to provide Islamic banking services in the UK under nonbanking regulations. The interviews also revealed that the main problem that Islamic banking faces in the UK is heterogeneous clients and potential clients. Moreover, regulatory hurdles, competition from conventional banks, and lack of adequately qualified and trained personnel exacerbate the situation. The study concludes by identifying opportunities such as e‐banking that may have a significant impact on the future of Islamic banking in the UK. © 2004 Wiley Periodicals, Inc.     

Whither Islamic Banking?

Islamic banking is visibly on the rise across the globe, supported by a growing clientele, both Muslim and non‐Muslim, although it has yet to demonstrate that it is a viable alternative to conventional banking. Islamic banking is still under the shadow of conventional banking, not only with products that are strikingly similar to those offered by conventional banks, but also with conventional banks having a strong presence as stakeholders in the Islamic banking industry. Islamic banking is still in the early phase of a presumably long evolutionary process, apparently stuck in the initial phase of product differentiation. Islamic banks are competing with conventional banks rather than among themselves, which does not augur well for innovations and creativity, as it tends to keep them preoccupied with modifications of conventional products with Shari'ah compliance. Islamic banks have arrived at a new crossroads. They could either continue on the same path of what may be termed as ‘head‐on competition’ with conventional banks or change their direction in favour of a ‘niche market’ strategy.     

A comparative study of the application of systems thinking in achieving organizational effectiveness in Malaysian and Pakistani banks

The present work is a comparative study of the banking industry of Malaysia and Pakistan. The paper aims to measure the impact of individual systems thinking on the overall organizational effectiveness. Skilled individuals are considered as an asset of the organization especially when these individuals exhibit systems thinking capabilities that helps in achieving effectiveness. The sample consisted of 368 respondents belonging to lower and middle tier levels in the banking sector of both countries. The results indicate that Malaysian banking employees are ahead of their counterparts in Pakistan while applying systems thinking. The study is significant in enhancing the understanding of the importance of systems thinking for organizational effectiveness. The study has managerial implications for the top management of banks.     

Effects of communication and financial concerns on banking attitude-behaviour relations

Despite extensive discussion of the concept of Islamic banking, which is based on the fundamental doctrines of Islamic law (Shariah) and Islamic economics (prohibition of interest and profit-loss sharing), few studies have explored the factors that potentially affect behaviour intentions among customers. This study investigates direct and moderating effects of communication and financial factors on customer attitudes and behavioural intentions towards Islamic banking. Data were collected from the customers of Islamic banks and the Islamic banking divisions of conventional banks in Malaysia using online surveys. The hypotheses were tested using hierarchical regression analysis. The results suggest that relationship marketing, informative advertising, perceived benefits, and profit-loss sharing are important determinants of behavioural intentions among both Muslim and non-Muslim customer groups. This study also found moderating effects for most of the conceptualized moderating variables, particularly attitude interactions with informative advertising, ease of online banking, and the principle of profit-loss sharing. There are both notable similarities and differences in the results for the two customer groups. The findings imply that different strategies should be used both to retain existing customers and attract new ones.     

The role of customer satisfaction in enhancing customer loyalty in Malaysian Islamic banks

This study examines the role of customer satisfaction in enhancing the loyalty of Muslim and non-Muslim customers in the Malaysian Islamic banking industry. Respondents are the customers (Muslim and non-Muslim customers) visiting the bank counters and have an account with Islamic banks. A total of 660 questionnaires were distributed, and 440 were returned. The results indicate that customer satisfaction has a statistically significant positive effect on customer loyalty and intentions to switch for Muslim and non-Muslim customers. However, there were significant differences in the effects of customer satisfaction on customer loyalty and intention to switch for Muslim and non-Muslim customers. The effect of customer satisfaction on customer loyalty and intention to switch is greater for the non-Muslim than the Muslim customers.     

Determinants of Bank Profitability in a Developing Economy: Empirical Evidence from the China Banking Sector

The Chinese banking sector has undergone noteworthy financial reforms, which significantly metamorphosed the banking system. This article seeks to examine the determinants of the profitability of the Chinese banking sector. The empirical analysis is confined to the four State Owned Commercial Banks (SOCBs) and the 12 Joint Stock Commercial Banks (JSCBs) during the postreform period of 2000–2007. The empirical findings of this study suggest that size, credit risk, and capitalization are positively related to the profitability of China banks, whereas liquidity, overhead costs, and network embeddedness have negative impacts. However, the impact of liquidity is not uniform across bank types. We find that the SOCBs with higher level of liquidity tend to be relatively more profitable, which could be vindicated by the significant amount of lending to the State Owned Enterprises. The impact of economic growth and inflation are always positive whether we examine the SOCB or the JSCB.     

Underpinning the benefits of green banking: A comparative study between Islamic and conventional banks in Bangladesh

This study aims to compare environmental motives and performance of conventional and Islamic banks in Bangladesh. Green compliance index was developed based on the Bangladesh Bank (the central bank of Bangladesh) guidelines whereas information regarding governance variables is collected from the annual reports of 9 Islamic and 31 conventional banks. Results show Islamic banks are more environmentally friendly compared to their conventional counterparts. Board size is negatively related to green compliance whereas board independence and auditor's type do not have any significant influence on green compliance for both clusters of banks. Compliance with green banking policies enhances the reputation for Islamic banks and accountability and profitability for conventional banks. Results of this study provide useful information for regulatory authorities to formulate policies that are conducive to enhance bank's environmental performance.