IDEAS home Printed from https://ideas.repec.org/a/ukm/jlekon/v52y2018i3p71-89.html
   My bibliography  Save this article

The Degree of Competition in the Malaysian Dual Banking Industry

Author

Listed:
  • Mohammed, Nafisah

    (Pusat Global dan Ekonomi Digital Fakulti Ekonomi dan Pengurusan Universiti Kebangsaan Malaysia 43600 Bangi Selangor MALAYSIA)

  • Muhammad, Junaina

    (Jabatan Perakaunan dan Kewangan Fakulti Ekonomi dan Pengurusan Universiti Putra Malaysia, 43400 Serdang Selangor MALAYSIA)

  • ismail, abdul

    (Chief Executive/Professor of Islamic Financial Economics Johor Islamic Studies College Jalan Herman, Kg Aman Larkin Jaya 80350 Johor Bahru MALAYSIA Chairperson Organization of Islamic Studies and Thoughts 45719, Desa Damai Putra Teras Jernang 43650 Bandar Baru Bangi Selangor Darul Ehsan MALAYSIA)

Abstract

The purpose of this study is to evaluate the degree of competition in the Malaysian dual banking industry to address the question of whether Islamic banks are able to cope with competition from the well-established conventional banks. The Panzar-Rosse (PR) method has been used to measure the degree of competition in Islamic compared with conventional banking market over the period of 1997-2016. Present study uses static panel data estimation to estimate the developed models. Results from the H-statistics values using total income show that level of competition in the Islamic banking market is more intense than conventional banking market. Hence, providing evidence that Islamic banks are able to compete with conventional banks that have long history of establishment. The H-statistic values using total interest income also indicate the same result, hence supporting the robustness of these results. The findings also show the effectiveness of policy changes adopted by Bank Negara Malaysia in order to increase level of competition in both banking markets. Hence, knowledge on this issue is important to the policy makers for them to formulate new policy regarding banking competition.

Suggested Citation

  • Mohammed, Nafisah & Muhammad, Junaina & ismail, abdul, 2018. "The Degree of Competition in the Malaysian Dual Banking Industry," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 52(3), pages 71-89.
    • Handle: RePEc:ukm:jlekon:v:52:y:2018:i:3:p:71-89
    DOI: http://dx.doi.org/10.17576/JEM-2018-5203-6
    as

    Download full text from publisher

    File URL: http://www.ukm.my/jem/wp-content/uploads/2021/06/jeko_523-6.pdf
    Download Restriction: no
    File URL: https://libkey.io/http://dx.doi.org/10.17576/JEM-2018-5203-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Saeed Al-Muharrami & Kent Matthews, 2009. "Market power versus efficient-structure in Arab GCC banking," Applied Financial Economics, Taylor & Francis Journals, vol. 19(18), pages 1487-1496.
    2. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
    3. Faisal Mehmood Mirza & Olvar Bergland & Isma Khatoon, 2016. "Measuring the degree of competition in Pakistan’s banking industry: an empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 48(53), pages 5138-5151, November.
    4. Amira Hakim & Ali Chkir, 2014. "Market structure and concentration in Islamic and conventional banking," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 7(3/4), pages 246-267.
    5. Shrimal Perera & Michael Skully & J. Wickramanayake, 2006. "Competition and structure of South Asian banking: a revenue behaviour approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(11), pages 789-801.
    6. Turk-Ariss, Rima, 2009. "Competitive behavior in Middle East and North Africa banking systems," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 693-710, May.
    7. Kupukile Mlambo & Mthuli Ncube, 2011. "Competition and Efficiency in the Banking Sector in South Africa," African Development Review, African Development Bank, vol. 23(1), pages 4-15.
    8. Ariss, Rima Turk, 2010. "Competitive conditions in Islamic and conventional banking: A global perspective," Review of Financial Economics, Elsevier, vol. 19(3), pages 101-108, August.
    9. Daniel Stavárek & Iveta Řepková, 2011. "Estimation of the competitive conditions in the Czech banking sector," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 59(2), pages 299-306.
    10. Anwar Hossain Repon & K.M Zahidul Islam, 2016. "Competition and Concentration in Bangladeshi Banking Sector: An Application of Panzar-Rosse Model," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 5(1), pages 14-29, January.
    11. Mohammed, Nafisah & ismail, abdul & Muhammad, Junaina & Abdul Jalil, Suhaila & Mohd Noor, Zaleha, 2015. "Market Concentration of Malaysia’s Islamic Banking Industry," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 49(1), pages 3-14.
    12. Mohammed, Nafisah & ismail, abdul & Muhammad, Junaina, 2016. "Concentration and Competition in Dual Banking Industry: A Structural Approach," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 50(2), pages 49-70.
    13. Bikker, Jacob A. & Haaf, Katharina, 2002. "Competition, concentration and their relationship: An empirical analysis of the banking industry," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2191-2214, November.
    14. Molyneux, Phil & Lloyd-Williams, D. M. & Thornton, John, 1994. "Competitive conditions in european banking," Journal of Banking & Finance, Elsevier, vol. 18(3), pages 445-459, May.
    15. Abdul Majid, Muhamed Zulkhibri & Sufian, Fadzlan, 2007. "Market Structure and Competition in Emerging Market: Evidence from Malaysian Islamic Banking Industry," MPRA Paper 12126, University Library of Munich, Germany, revised 01 Jul 2007.
    16. Serpil Kuzucu, 2015. "Concentration and Competition in Turkish Banking Industry:The Evidence from 2000 to 2012," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 4(3), pages 01-10, July.
    17. Carlos Pestana Barros & Zorro Mendes, 2016. "Assessing the competition in Angola’s banking industry," Applied Economics, Taylor & Francis Journals, vol. 48(30), pages 2785-2791, June.
    18. Molyneux, Philip & Thornton, John & Michael Llyod-Williams, D., 1996. "Competition and market contestability in Japanese commercial banking," Journal of Economics and Business, Elsevier, vol. 48(1), pages 33-45, February.
    19. Laurent Weill, 2011. "Do Islamic Banks Have Greater Market Power?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 53(2), pages 291-306, June.
    20. Barbara Casu & Claudia Girardone, 2006. "Bank Competition, Concentration And Efficiency In The Single European Market," Manchester School, University of Manchester, vol. 74(4), pages 441-468, July.
    21. Fadzlan Sufian & Muzafar Shah Habibullah, 2013. "Financial sector consolidation and competition in Malaysia," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 40(3), pages 390-410, July.
    22. Gasaymeh, Anwar Salameh & Abdul Karim, Zulkefly & Abdul-Majid, Mariani & jusoh, mansor, 2014. "Competition and Market Structure of Banking Sector: A Panel Study of Jordan and GCC Countries," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 48(1), pages 23-34.
    23. De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
    24. Phil Molyneux & D. M. Lloyd-Williams & John Thornton, 1994. "European Banking: An Analysis of Competitive Conditions," Palgrave Macmillan Books, in: Jack Revell (ed.), The Changing Face of European Banks and Securities Market, chapter 1, pages 3-29, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ronald Kumar & Arvind Patel, 2014. "Exploring competitiveness in banking sector of a small island economy: a study of Fiji," Quality & Quantity: International Journal of Methodology, Springer, vol. 48(6), pages 3169-3183, November.
    2. Mohammed, Nafisah & Muhammad, Junaina & ismail, abdul & Jauhari, Azmafazilah Binti, 2019. "Does Efficiency Matter for Competition? A Case of Dual Banking Industry," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 163-177.
    3. Samuel Fosu, 2013. "Banking Competition in Africa: Sub-regional Comparative Studies," Discussion Papers in Economics 13/12, Division of Economics, School of Business, University of Leicester, revised Jun 2013.
    4. Sami Mensi, 2010. "Measurement of Competitiveness Degree in Tunisian Deposit Banks: An Application of the Panzar and Rosse Model," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(2), pages 189-207, June.
    5. Tai-Hsin Huang & Nan-Hung Liu, 2014. "Bank competition in transition countries: Are those markets really in equilibrium?," Empirical Economics, Springer, vol. 47(4), pages 1283-1316, December.
    6. Hong Liu & Philip Molyneux & Linh H. Nguyen, 2012. "Competition and risk in South East Asian commercial banking," Applied Economics, Taylor & Francis Journals, vol. 44(28), pages 3627-3644, October.
    7. Anwar Hossain Repon & K.M Zahidul Islam, 2016. "Competition and Concentration in Bangladeshi Banking Sector: An Application of Panzar-Rosse Model," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 5(1), pages 14-29, January.
    8. Mohammed, Nafisah & ismail, abdul & Muhammad, Junaina, 2016. "Concentration and Competition in Dual Banking Industry: A Structural Approach," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 50(2), pages 49-70.
    9. Khaldoun M. Al-Qaisi, 2018. "A Literature Review on the Competition in the Banking Sector," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(1), pages 174-184, January.
    10. Fosu, Samuel, 2013. "Banking competition in Africa: Subregional comparative studies," Emerging Markets Review, Elsevier, vol. 15(C), pages 233-254.
    11. Guidi, Francesco, 2021. "Concentration, competition and financial stability in the South-East Europe banking context," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 639-670.
    12. Abdul Latif Alhassan & Nicholas Biekpe, 2017. "Liberalization Outcomes and Competitive Behaviour in an Emerging Insurance Market," African Development Review, African Development Bank, vol. 29(2), pages 122-138, June.
    13. Anzoategui, Diego & Pería, María Soledad Martínez & Melecky, Martin, 2012. "Bank competition in Russia: An examination at different levels of aggregation," Emerging Markets Review, Elsevier, vol. 13(1), pages 42-57.
    14. Muhamed Majid & Fadzlan Sufian, 2006. "Consolidation and Competition in Emerging Market: An Empirical Test for Malaysian Banking Industry," Economic Change and Restructuring, Springer, vol. 39(1), pages 105-124, June.
    15. Jean-Michel Sahut & Mehdi Mili & Maroua Ben Krir & Frédéric Teulon, 2015. "Factors of Competitiveness of Islamic Banks in the New Financial Order," Working Papers 2015-625, Department of Research, Ipag Business School.
    16. Abdul Majid, Muhamed Zulkhibri & Sufian, Fadzlan, 2007. "Market Structure and Competition in Emerging Market: Evidence from Malaysian Islamic Banking Industry," MPRA Paper 12126, University Library of Munich, Germany, revised 01 Jul 2007.
    17. Tabak, Benjamin M. & Fazio, Dimas M. & Cajueiro, Daniel O., 2012. "The relationship between banking market competition and risk-taking: Do size and capitalization matter?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3366-3381.
    18. Andrieş, Alin Marius & Căpraru, Bogdan, 2014. "The nexus between competition and efficiency: The European banking industries experience," International Business Review, Elsevier, vol. 23(3), pages 566-579.
    19. Rima Turk Ariss, 2010. "Competitive conditions in Islamic and conventional banking: A global perspective," Review of Financial Economics, John Wiley & Sons, vol. 19(3), pages 101-108, August.
    20. Anzoategui Diego & Martinez Peria Maria S. & Rocha Roberto R, 2010. "Bank Competition in the Middle East and Northern Africa Region," Review of Middle East Economics and Finance, De Gruyter, vol. 6(2), pages 26-48, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ukm:jlekon:v:52:y:2018:i:3:p:71-89. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Muhammad Asri Abd Ghani (email available below). General contact details of provider: https://edirc.repec.org/data/feukmmy.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.