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The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey


  • Joshua Charap
  • Serhan Cevik


This paper examines the empirical behavior of conventional bank deposit rates and the rate of return on retail Islamic profit-and-loss sharing (PLS) investment accounts in Malaysia and Turkey, using monthly data from January 1997 to August 2010. The analysis shows that conventional bank deposit rates and PLS returns exhibit long-run cointegration and the time-varying volatility of conventional bank deposit rates and PLS returns is correlated and is statistically significant. The pairwise and multivariate causality tests show that conventional bank deposit rates Granger cause returns on PLS accounts. These findings have policy implications in terms of price stability and financial stability.

Suggested Citation

  • Joshua Charap & Serhan Cevik, 2011. "The Behavior of Conventional and Islamic Bank Deposit Returns in Malaysia and Turkey," IMF Working Papers 11/156, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:11/156

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    References listed on IDEAS

    1. Patrick A. Imam & Kangni R Kpodar, 2010. "Islamic Banking; How Has it Diffused?," IMF Working Papers 10/195, International Monetary Fund.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    4. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
    5. Chong, Beng Soon & Liu, Ming-Hua, 2009. "Islamic banking: Interest-free or interest-based?," Pacific-Basin Finance Journal, Elsevier, vol. 17(1), pages 125-144, January.
    6. Mohsin S. Khan, 1986. "Islamic Interest-Free Banking: A Theoretical Analysis (Le système bancaire islamique: analyse théorique d'un système qui ne fait pas appel à l'intérêt) (La prohibición islámica de los intereses," IMF Staff Papers, Palgrave Macmillan, vol. 33(1), pages 1-27, March.
    7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    8. Ebrahim, Muhammed-Shahid & Safadi, Akram, 1995. "Behavioral norms in the Islamic doctrine of economics: A comment," Journal of Economic Behavior & Organization, Elsevier, vol. 27(1), pages 151-157, June.
    9. Beck, Thorsten & Demirgüç-Kunt, Asli & Merrouche, Ouarda, 2013. "Islamic vs. conventional banking: Business model, efficiency and stability," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 433-447.
    10. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
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    Cited by:

    1. Nabi, Mahmoud Sami, 2012. "Dual Banking and Financial Contagion," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 20, pages 29-54.
    2. Uddin, Md Akther, 2016. "Reemergence of Islamic Monetary Economics: A Review of Theory and Practice," MPRA Paper 72081, University Library of Munich, Germany.
    3. Nazib, Nur Afiyah & Masih, Mansur, 2017. "The response of monetary policy shocks on Islamic bank deposits: evidence from Malaysia based on ARDL approach," MPRA Paper 82094, University Library of Munich, Germany.
    4. Ahmet F. Aysan & Mustafa Disli & Huseyin Ozturk, 2017. "Bank Lending Channel In A Dual Banking System:Why Are Islamic Banks So Responsive?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 17/938, Ghent University, Faculty of Economics and Business Administration.
    5. Meslier, Céline & Risfandy, Tastaftiyan & Tarazi, Amine, 2017. "Dual market competition and deposit rate setting in Islamic and conventional banks," Economic Modelling, Elsevier, vol. 63(C), pages 318-333.
    6. Gulzar, Rosana & Masih, Mansur, 2015. "Islamic banking: 40 years later, still interest-based? Evidence from Malaysia," MPRA Paper 65840, University Library of Munich, Germany.
    7. Soedarmono, Wahyoe & Pramono, Sigid Eko & Tarazi, Amine, 2017. "The procyclicality of loan loss provisions in Islamic banks," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 911-919.
    8. Korkut, Cem & Özgür, Önder, 2017. "Is there a Link between Profit Share Rate of Participation Banks and Interest Rate?[:] The Case of Turkey," MPRA Paper 81642, University Library of Munich, Germany.
    9. Çokgezen, Murat & Kuran, Timur, 2015. "Between consumer demand and Islamic law: The evolution of Islamic credit cards in Turkey," Journal of Comparative Economics, Elsevier, vol. 43(4), pages 862-882.
    10. Zulkhibri, Muhamed & Sukmana, Raditya, 2016. "Financing Channel and Monetary Policy: Evidence from Islamic Banking in Indonesia," Working Papers 2016-1, The Islamic Research and Teaching Institute (IRTI).
    11. Bourkhis, Khawla & Nabi, Mahmoud Sami, 2013. "Islamic and conventional banks' soundness during the 2007–2008 financial crisis," Review of Financial Economics, Elsevier, vol. 22(2), pages 68-77.
    12. Abdus Samad, 2016. "Are Islamic Banks’ Non-bank Deposits Shock Resistant? A Comparison with Conventional Banks: Evidence from Bahrain," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 6(5), pages 1-6.
    13. Ahmet F. Aysan & Mustafa Disli & Meryem Duygun & Huseyin Ozturk, 2017. "Religiosity Versus Rationality: Depositor Behavior In Islamic And Conventional Banks," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 17/933, Ghent University, Faculty of Economics and Business Administration.
    14. repec:eee:ecmode:v:64:y:2017:i:c:p:443-448 is not listed on IDEAS
    15. Olga Krasicka & Sylwia Nowak, 2012. "What’s in it for Me? A Primeron Differences between Islamic and Conventional Finance in Malaysia," IMF Working Papers 12/151, International Monetary Fund.
    16. Guglielmo Maria Caporale & Abdurrahman Nazif Catik & Mohamad Husam Helmi & Faek Menla Ali & Mohammad Tajik, 2016. "The Bank Lending Channel in a Dual Banking System: Evidence from Malaysia," Discussion Papers of DIW Berlin 1557, DIW Berlin, German Institute for Economic Research.
    17. Wahyoe Soedarmono & Sigid Eko Pramono & Amine Tarazi, 2016. "The procyclicality of loan loss provisions in Islamic banks: Do managerial discretions matter?," Working Papers hal-01281151, HAL.
    18. repec:eco:journ1:2017-05-52 is not listed on IDEAS
    19. Hussan, Subithabhanu & Masih, Mansur, 2014. "Are The Profit Rates of the Islamic Investment Deposit Accounts Truly Performance Based? A Case Study of Malaysia," MPRA Paper 57689, University Library of Munich, Germany.
    20. Sirajo Aliyu & Rosylin Mohd Yusof, 2016. "Profitability and Cost Efficiency of Islamic Banks: A Panel Analysis of Some Selected Countries," International Journal of Economics and Financial Issues, Econjournals, vol. 6(4), pages 1736-1743.
    21. Ahmet F. Aysan & Mustafa Disli & Huseyin Ozturk & Ibrahim M. Turhan, 2015. "Are Islamic Banks Subject To Depositor Discipline?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-16.
    22. Mobin, Mohammad Ashraful & Masih, Mansur, 2014. "Do the macroeconomic variables have any impact on the Islamic bank deposits?An application of ARDL approach to the Malaysian market," MPRA Paper 62342, University Library of Munich, Germany.
    23. Mariam El Hamiani Khatat, 2016. "Monetary Policy in the Presence of Islamic Banking," IMF Working Papers 16/72, International Monetary Fund.
    24. Katarzyna Kubiszewska & Rafał Komorowski, 2016. "An Assessment of Islamic Banking in Bosnia and Herzegovina – a comparative analysis using the CAMELS approach," International Economics, University of Lodz, Faculty of Economics and Sociology, issue 16, pages 367-387, December.

    More about this item


    Cross country analysis; Malaysia; Profit margins; Turkey; Interest rates; Islamic banks; causality; time-varying volatility correlation; bank deposit; interest; balance sheet; debt;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
    • F59 - International Economics - - International Relations, National Security, and International Political Economy - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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