Abstract:
The better performance of Islamic banks in facing the recent global crisis has drawn much attention to how these banks function. This research, using the PR-H statistic, the Lerner index, and multivariate analysis, examines the hypotheses that: first, players in the Islamic banking industry have better profitability due to having more market power and show less competition in terms of market structure; second, the Islamic banking market is more concentrated and faces higher risk. The estimates in this study indicate that Islamic banks have a higher degree of market power. On the other hand, multivariate analyses show that profitability increases significantly with an increase in market power. The Islamic banking market shows less competition and more concentration. Based on the results obtained, Islamic banks allocate a larger share of their assets to financing activities and have more efficient capital allocation.
Machine summary:
Investigating the competitive status and testing the effect of Islamic and conventional banking market structure on profitability Abstract The better performance of Islamic banks in facing the recent global crisis has drawn significant attention to the mechanism of these banks.
This research, by employing the PR-H statistic, the Lerner index, and multivariate analysis, examines the hypotheses that: first, actors in the Islamic banking industry have better profitability due to having more market power and show less competition in terms of market structure.
In this research, the effect of market competition intensity on bank profitability is examined, and for this purpose, both the H-statistic and the Lerner index (which are different for conventional and Islamic banks) are used.
For this purpose, these authors used the Boone indicator and the efficiency-adjusted Lerner index as a proxy for competition, and the NPL ratio and Z-scores as a proxy for banking stability, and also Shahimi et al, 2006 fee Income Turk Ariss, 2009 panzar and Rosse Model The Middle East and North Africa Fosu Panzar and Rosse-H statistics Kasman and Kasman Non-performing loans (NPL) ratio have utilized the Herfindahl-Hirschman Index (HHI) and the five-bank concentration ratio to examine the effect of banking market concentration on banking stability.
Second, the degree of competitiveness of the global traditional and Islamic banking markets is measured using a spectrum of key indicators (concentration criteria, namely the H-statistic, and the Lerner index).
(Refer to page image) Source: Research calculations Table 1 shows that Islamic banks, compared to traditional banks, have allocated a significantly higher proportion of their assets to facilities, which indicates a higher credit risk exposure range.
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