Junaina Muhammad

A comparative study on the level of efficiency between Islamic and conventional banking systems in Malaysia

Purpose - The purpose of this paper is to study the difference (or lack of difference) in the efficiency level of Islamic and conventional banking in Malaysia. Are the Islamic banks performing as good as the conventional banks, even though they are constrained by Islamic tenets? Design/methodology/approach - Data envelopment analysis is used to measure the efficiency levels of banks in both sectors. Findings - It is found that there is no significant difference in the level of efficiency between Islamic banks and conventional banks. Research limitations/implications - The period of study is only three years, with only two banks which have been operating for more than three years, while the other Islamic banks in this study are just beginning their operation in Islamic banking. The inclusion of foreign banks operating in Malaysia in this analysis might distort the findings, as foreign banks have different capital structures and objectives compared to local ones. Practical implications - The paper shows that even though Islamic banks are limited by Islamic tenets in their operations, they are able to maintain a performance that is equivalent to the conventional banks. Originality/value - The paper makes comparisons of the efficiency levels between two different banking systems.

Cost, Revenue and Profit Efficiency of Islamic and Conventional Banking Sector: Empirical Evidence from Gulf Cooperative Council Countries

This article examines the cost, revenue and profit efficiency levels of 74 banks (47 conventional and 27 Islamic banks) in Gulf Cooperative Council (GCC) countries over the periods 2007 to 2011. The level of efficiencies was measured using Data Envelopment Analysis (DEA) method which applied the intermediation approach. We find that, revenue efficiency seems to play the main factor leading to the lower or higher profit efficiency levels. In essence, the higher revenue efficiency only affects a higher profit efficiency levels in Islamic banks. However, the profit efficiency on conventional banks will not be affect by the higher revenue efficiency levels since the result shows the level of profit efficiency is lower than cost efficiency due to the higher revenue efficiency. In addition, the result of this study also shows that they are statistically significant difference on cost, revenue and profit efficiency between Islamic and conventional banks in GCC countries. The findings of this study are expected to contribute significantly to the existing knowledge on the operating performance of the GCC Islamic and conventional banking sector, bank’s specific management, policy makers and may also facilitate directions for sustainable competitiveness of the GCC Islamic and conventional banking sector operations in the future.

Macroeconomic dataset for generating macroeconomic volatility among selected countries in the Asia Pacific region

This data article provides macroeconomic data that can be used to generate macroeconomic volatility. The data cover a sample of seven selected countries in the Asia Pacific region for the period 2004–2014, including both developing and developed countries. This dataset was generated to enhance our understanding of the sources of macroeconomic volatility affecting the countries in this region. Although the Asia Pacific region continues to remain as the most dynamic part of the worlds economy, it is not spared from various sources of macroeconomic volatility through the decades. The reported data cover 15 types of macroeconomic data series, representing three broad categories of indicators that can be used to proxy macroeconomic volatility. They are indicators that account for macroeconomic volatility (i.e. volatility as a macroeconomic outcome), domestic sources of macroeconomic volatility and external sources of macroeconomic volatility. In particular, the selected countries are Malaysia, Thailand, Indonesia and Philippines, which are regarded as developing countries, while Singapore, Japan and Australia are developed countries. Despite the differences in level of economic development, these countries were affected by similar sources of macroeconomic volatility such as the Asian Financial Crisis and the Global Financial Crisis. These countries were also affected by other similar external turbulence arising from factors such as the global economic slowdown, geopolitical risks in the Middle East and volatile commodity prices. Nonetheless, there were also sources of macroeconomic volatility which were peculiar to certain countries only. These were generally domestic sources of volatility such as political instability (for Thailand, Indonesia and Philippines), natural disasters and anomalous weather conditions (for Thailand, Indonesia, Philippines, Japan and Australia) and over-dependence on the electronic sector (for Singapore).

Market concentration of Malaysia's Islamic banking industry

The aim of this paper is to evaluate the nature and changes of market concentration in the Malaysia’s Islamic banking due to the restructuring of Islamic banking industry within the liberalization wave in the banking market. A total of 17 Islamic banks operating over the period of 2000-2010 had been considered. The structural approach framework was used to evaluate the nature and changes of market concentration in the Islamic banking industry in Malaysia. Under this approach, various market concentration indexes has been calculated from year to year basis as proposed by the industrial organizational field. Findings herein supported the structure-conduct-performance (SCP) paradigm where different concentration ratios have decreased over the study’s period where this is reflected in the greater degree of competition in the Malaysia’s Islamic banking industry. This study found an evidence that structural changes in the Islamic banking market has changed the market structure of the respective market from moderately concentrated to low concentrated market; whereby supporting the existence of competitive environment in the Malaysian Islamic banking market. Present study contributed to new knowledge in banking market concentration particularly for Islamic banking industry in the emerging economies such as Malaysia. Many past studies studying this issue had extensively examined the conventional banking system, but only several studies were on Islamic banking market. Hence, this study may enrich the existing literature on this issue, particularly for the Islamic banking industry. Policy recommendation from the findings; first, Malaysian Islamic banking industry needs a contestable market environment as to enable them to achieve better profit and efficient operation. Second, concentration ratios from this study can be used to identify the optimal number of banking firms in the Islamic banking industry.

Design, qualification and Shariah governance of stock screening methodologies in selected Gulf Cooperation Council (GCC) countries in comparison with the United States

Purpose This paper aims to compare and analyse the aspects of Shariah screening methodologies within the selected Gulf Cooperation Council (GCC) countries as well as comparing the methodologies with the USA, and to examine how Shariah screening methodologies affect financing and investing activities of a firm. Design/methodology/approach Shariah screening methodologies within the selected GCC countries and between the GCC countries and the USA are compared on the basis of the data collected from secondary sources. Findings Design, qualification and Shariah governance set the Shariah screening methodologies within the GCC countries apart. Feasibility, duration, economic viability and funds required differentiate these Shariah screening methodologies between the GCC countries and the USA. Shariah screening methodologies implied in the USA is more stringent than in the GCC countries. Research limitations/implications The suggestions in this study include using a longer research timeline, examining many more number of countries’ Shariah screening methodologies and exploring other types of Shariah screening methodologies. Practical implications The possibility of generalising the implementation of strict and uniform Shariah screening methodologies across all the country-specific Shariah indices amongst Muslim nations, globally, is likely to benefit all the Muslim countries, by strengthening the understanding, interaction and economic co-operation amongst these countries. Social implications People’s needs can be tended to if Maqasid Al-Shariah (objectives of Shariah) is achieved through flexibility, dynamism and creativity within the social policy. Originality/value Aspects of Shariah screening methodologies are compared and contrasted within the selected GCC countries as well as between the GCC countries and the United States and the role of Shariah screening methodologies is examined in order to determine the extent of what is Shariah-Compliant and what is Non-Shariah Compliant for a firm.

Macroeconomic uncertainty, corporate governance and corporate capital structure

Purpose The purpose of this paper is to examine how corporate governance moderates the relationship between macroeconomic uncertainty and corporate capital structure. Design/methodology/approach This paper employs the two-step system generalized method of moments regression, considering a sample of 907 listed non-financial firms from seven Asia Pacific countries during the period 2004-2014. Findings This study finds that macroeconomic uncertainty has a significant negative impact on the capital structure decisions of firms. The results also reveal that the overall effect of macroeconomic uncertainty on capital structure among firms with better governance quality is significantly negative. The evidence suggests that corporate governance acts as an effective mechanism to curb the usage of leverage during times of high volatility. Further analysis shows that board independence, the separation between the roles of CEO and chairman of the board and blockholders’ ownership are effective governance mechanisms, whereas similar observations do not hold for board size and institutional ownership. Research limitations/implications The findings of this study may be useful to policy makers to formulate appropriate policies to mitigate the adverse effects caused by macroeconomic uncertainty. This is important because macroeconomic uncertainty may have potential destabilizing effects on a country’s or region’s development by jeopardizing the firms’ ability to formulate sound investment, production and financing decisions. Additionally, the results suggest that good governance quality can act as a check and balance to ensure that firms use less leverage when they are facing volatility in the macroeconomic environment. These findings could help to reinforce the importance of good governance among policy makers of a country as well as managers of firms. Originality/value The authors make the first attempt to examine the moderating effect of corporate governance on the relationship between macroeconomic uncertainty and corporate capital structure.

Concentration and competition in dual banking industry: A structural approach

The purpose of this paper is to investigate the evolution of market concentration and competition in Malaysian dual banking industry for the period of 1997-2013. This study utilized structural approach to investigate changes in the market structure particularly the level of concentration and competition that contributed by several structural changes which take place in the dual banking system. According to structural approach, concentration plays an important role in examining the link between concentration and competition. Therefore, present paper utilized the structural approach to measure various concentration indexes to provide significant evidence on the changes in the market structure of Malaysian banking industry for the largest available data set of 1997-2013. Pearson correlation analysis was also used to examine the consistency of those various measures used in this study. The paper found evidence that structural changes have altered the market structure of the banking industry which comprises of Islamic and conventional banking system. The results also indicate that dual banking industry operates in the monopolistic competition structure. Therefore, concentration indexes can be used by authorities to decide on the optimal number of banks operating in the industry.

Neoteric Performance Challenges for Islamic Banks: An Elucidation

This paper aims to examine the challenges posed to the global banking environment with the advent of phenomenal growth in Islamic banking and the changing macroeconomic environment. The paper reviews different approaches to analyze the banking sector performance and the success or failure thereof. The paper also identifies the main factors affecting banking sector performance and their relative impact on the overall stability and resilience of banks. The approach of this paper is more judiciously diagnostic and synthesizing in nature. The paper covers significant studies undertaken in banking sector and synthesizes the nature of elements used to predict the predilection status of Islamic and conventional commercial banks. The findings suggest that return on equity (ROE) and weighted capital adequacy ratio (WCAR) are the most important bank-specific factors that may be used to analyze bank’s performance. The findings also suggest that not only bank-specific but macroeconomic factors also play an important role in determining a bank’s performance in an economy, though the effect is usually widespread. Amongst macroeconomic factors, GDP growth rate, inflation, and real interest rate are most common factors affecting bank performance. This research is different from other researches as it takes into consideration the methodological, aeon and acclimatization perspective. Most researches do not see Islamic banking as a challenge to conventional commercial banking and the banking sector in general. The paper not only reviews Islamic banking as a major element of change in the overall banking environment but also as a potential intimidator to the conventional banking stream.

Deflation and Economic Growth in Japan

Fear of deflation leads to the hypothesis that deflation can have influential negative impact on growth. This paper aims to examine the relation between deflation and growth slowdown of the Japan economy through threshold effect. By using quarterly time series data from 1965 to 2010, log functional form and OLS threshold regression method, the research found existence of the threshold effect which is significant statistically and strong economically. The threshold point of mild deflation is actual true zero inflation. Below this point, the negative impact of deflation will occur on growth. However this finding is sensitive to period of study. Negative threshold impact of deflation turn to be insignificant if period 1990 to 2010 is taken. In addition, deflation has positive impact on economic growth. These finding which are observed from period with prevalence of deflation is in striking contrast with predication of fear of deflation theory of Keynesians but consistent with Austrian Business Cycle and productivity norm deflation theories. Hence, reasons for fear of danger of deflation in the case of Japan cannot be justified.