IDEAS home Printed from https://ideas.repec.org/a/eme/imefpp/v6y2013i1p7-42.html
   My bibliography  Save this article

Impact of financial liberalization and foreign bank entry on Islamic banking performance

Author

Listed:
  • M. Kabir Hassan
  • Benito Sanchez
  • M. Faisal Safa

Abstract

Purpose - This paper aims to examine the impact of financial liberalization and foreign Islamic bank entry on the performance of domestic Islamic banks, and credit availability to the private sector. Design/methodology/approach - The authors use the weighted least squares method to estimate four models. These models are suggested by Lee. For this, the inverse of the number of domestic Islamic banks in each period is used to weight the observations in the regressions to correct for varying number of bank observations in each country. Findings - The results indicate that foreign Islamic banks, on average, follow aggressive financing in host countries and enjoy higher net profit margin. Banking sector returns play an important role in the entry decision and presence of foreign banks. Moreover, favorable macro-economic conditions play a supportive role while higher tax policies play a hostile role for the entry and presence of foreign Islamic banks. The recent financial crisis does not seem to affect the entry decision significantly. But the profitability of domestic Islamic banks has been seriously affected by the recent crisis. Also domestic tax policy and macro-economic environment play important roles in determining the domestic Islamic bank performance. Results also indicate that private sector credit availability seems to suffer because of higher tax and reserve rate. Practical implications - The authors' findings suggest that host Islamic economies should strive for an efficient capital market with supportive macro-economic environment, which in turn helps the local banking sector to develop and benefit from the foreign Islamic bank entry. Originality/value - This is the first paper to analyze the entry of foreign Islamic banks in the host countries with Islamic banking sector.

Suggested Citation

  • M. Kabir Hassan & Benito Sanchez & M. Faisal Safa, 2013. "Impact of financial liberalization and foreign bank entry on Islamic banking performance," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 6(1), pages 7-42, March.
  • Handle: RePEc:eme:imefpp:v:6:y:2013:i:1:p:7-42
    as

    Download full text from publisher

    File URL: http://www.emeraldinsight.com/10.1108/17538391311310716?utm_campaign=RePEc&WT.mc_id=RePEc
    Download Restriction: Access to full text is restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nuri BALTACI & Gizem AKBULUT & Gürsan CÝVELEK, 2014. "The Relationship between Foreign Banking and Credit Access: Panel Analysis Method," Journal of Economics and Political Economy, KSP Journals, vol. 1(1), pages 39-48, September.
    2. Ali, Abdelrahman Elzahi Saaid, 2016. "Poverty Alleviation through Microfinance in North-East Kenya Province," Working Papers 2016-9, The Islamic Research and Teaching Institute (IRTI).
    3. Ashraf, Dawood & Ramady, Mohamed & Albinali, Khalid, 2016. "Financial fragility of banks, ownership structure and income diversification: Empirical evidence from the GCC region," Research in International Business and Finance, Elsevier, vol. 38(C), pages 56-68.

    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:eme:imefpp:v:6:y:2013:i:1:p:7-42. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman). General contact details of provider: http://www.emeraldinsight.com .

    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.

    We have no references for this item. You can help adding them by using 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.