4. Theses

Numerous attempts have been made to study the impact of competition on banking-stability before and after the recent global financial crisis. In the rich theoretical and empirical literature on the topic, two contradictory views have surfaced, i.e. the competition-fragility view and the competition-stability view. This thesis provides empirical evidence of a nonlinear relationship between competition and stability that explains, at least partially, the conflicting results of previous theoretical and empirical studies. Furthermore, while the existing literature focuses on conventional banking, this thesis investigates both Islamic and conventional banks in dual banking systems and explores whether or not bank types affect the competition-stability relationship. Using GMM technique on panel data covering the dual-banking countries that have significant share of Islamic banking for the period from 2004 until 2014, this thesis finds that the relationship between market power and stability is nonlinear for both Islamic and conventional banks, albeit with a marginal difference between them. The impact of market power is initially positive "supporting the charter value theory," but it turns to be negative as soon as banks' market power exceeds a certain limit, probably because the negative impact of the "too-important-to-fail" moral hazard overcomes the initial positive impact.

This imbalance nature of Islamic bank's performance is of great concern, which motivates this research, which is to examine the determinants of the imbalance of the imbalance nature of Islamic banks' performance in Sudan. In doing so, it seeks to fulfill three main objectives, namely examining the imbalance nature of Islamic banks' performance in Sudan, examining the awareness of the policy makers and the Islamic banks' managers to this imbalance nature, and to investigate its determinants ...

Establishing a Shariah compliant liquidity risk management framework for Islamic banks in the West African Economic and Monetary Union (WAEMU) is fundamental for the development of the industry, 40 years after the licensing of the first Islamic bank in the Union. This paper provides a gap analysis of the current liquidity management framework of BCEAO, the central bank of WAEMU s member countries, focused exclusively on conventional banks activities. Institutional and operational challenges of a secular jurisdiction to fully comply with AAOIFI and IFSB standards regarding liquidity deploying and liquidity absorption, are highlighted alongside with the constraints for the establishment of a well-functioning Islamic interbank money market. After a review of the practices in mature Islamic finance jurisdictions (Malaysia, Bahrain, Indonesia and Pakistan) and in a secular jurisdiction like the United Kingdom, the paper identifies the relevant tools to manage these challenges. Finally, guidelines are proposed to establish a suitable risk management framework for Islamic banks in the WAEMU countries, in particularly the provision of a Shariah Lender of Last Resort mechanism in BCEAO s regulations and the creation of an Islamic interbank money market. This paper is hoped to accelerate the on-going work since 2012 within BCEAO and the regional Securities and Exchange Commission (AMF-UMOA), to promote the development of Islamic finance in the region with the technical assistance of the Islamic Development Bank.

This study empirically investigates the financial intermediation costs represented by net financing margins in the Islamic banking sector in OIC countries for 2005-2011 period utilizing Generalized Method of Moments (GMM). We focus on the role of bank-specific, macroeconomic, market-specific and institutional-governance factors on the Islamic banks' margins. For comparative analysis, we assess the difference in margins and analyse whether the factors that affect margins in conventional banks affect Islamic bank differently by constructing an unmatched and matched sample. Further, we examine the impact of the global financial crisis on both banks. The findings indicate that risk aversion, bank size, credit risk, inflation and GDP growth are important factors in explaining Islamic banks' margins. While, overhead costs, market concentration and institutional-governance factors have no significant impact on the margins of Islamic banks. We also find evidence that Islamic banks have higher margins that conventional banks in the case of the matched sample. The results also suggest that all the factors above have no differential impact on the margins of Islamic banks except for bank size in both samples. Interestingly, the crisis has a positive impact on Islam banks' margins but a negative impact on those of conventional banks. Our findings demonstrate important policy implications for reducing the financial intermediation costs of Islamic banks which include sound risk management, scale efficiency, macroeconomic stability, products innovation and managerial efficiency.

Islamic banks have proliferated and emerged as important players in the global banking industry especially in the Muslim-majority countries. The recent increase in the number and market share of Islamic banks has intensified the competition in this new industry. Despite its importance, the increasing competition in Islamic banking market not only from its own Islamic peers, but also from commercial banks has not been adequately addressed nor its consequences have been investigated. This thesis aims to shed the light on this important issue by investigating the effect of competition on the efficiency of both Islamic and conventional banks. Employing one-step stochastic frontier approach and a bank-level data set of 263 banks from 10 countries over the period 2001-2014, we find that both competition-inefficiency and the quiet life hypotheses work simultaneously. The basic finding supports competition-inefficiency hypothesis where the increasing competition in the banking market leads to decreases in the cost efficiency. Further investigation of the non-linear impact shows an evidence of quiet life hypothesis. Additionally, the negative effects of competition on cost efficiency is almost counterbalanced in highly concentrated markets. Interestingly, the findings show that the positive impact of concentration on efficiency is higher for Islamic banks compared to conventional banks, and the quiet life hypothesis is less probable to exist in Islamic banks due to their distinct business model and corporate governance. The findings of this thesis draw important policy implications. Regarding pro-competitive policies, regulators in low and moderate concentrated market face a trade-off between social welfare and cost efficiency. In contrast, adopting pro-competitive policies in highly concentrated markets will generate social welfare without harming banks efficiency. For full-fledged Islamic banks, in order to survive the intense competition, they may look for strategic mergers to benefit from economic of scale. Alternatively, Islamic banks may adopt a product differentiation strategy by creating and emphasizing the ethical values in their products which are in line with the ultimate Shariah objectives

Shariah compliance is the core of Islamic finance and it is the most significant feature for any Islamic financial institutions. It is the very objective of Islamic financial institutions in all their operations, products and affairs. With the enforcement of IFSA 2013, penalties and consequences of not following Shariah compliance can be severe. Notwithstanding all the efforts that have been taken to strengthen the Shariah compliance framework and mitigate the occurrence of Shariah non-compliance at the Malaysian Islamic banking institutions, incidences of Shariah non-compliance do still emerge and materialise. Thus, this study is an effort to examine the subject of Shariah non-compliant (SNC) events in selected Malaysian Islamic banking institutions. The researcher attempts to explore the nature and framework of SNC events in the Malaysian Islamic banking industry by giving emphasis on on the four main aspects of SNC events i.e. (i) detection, (ii) rectification, (iii) implication and (iv) cause. This research is a qualitative study in nature. Data was collected using in-depth interviews and focus group discussion. The selected interviewees and participants are individuals who are involved directly with the day-to-day Shariah non-compliance management at the Malaysian Islamic banking institutions. The first chapter dealt with the introduction to this study, covering the objectives, problem statements, research questions, motivation and significance of the study. Then, the second chapter elaborated on the main SNC elements form Islamic legal perspective as well as the development of Malaysian Islamic banking system based on the principles of Shariah compliance. The third chapter reviewed previous literature related to Shariah non-compliance in Islamic banking and finance. The fourth chapter described the methodology adopted to realise the objective of this study namely interview, focus group, triangulation and content analysis. The fifth chapter discussed the results of the interviews and focus group discussion. Then, the sixth chapter presented the main findings of this research based on its four objectives. Both chapters five and six constitute the findings of this research. The final chapter concluded the study with several implications and recommendations.