This paper empirically analyses the role of Islamic banking in financial intermediation costs as measured by net interest margins for a leading dual banking country, Malaysia. Controlling for theoretically motivated determinants of the margins, the paper compares the interest/financing margins of conventional and Islamic banks and examines the impacts of Islamic banking presence on bank margins. The analysis provides evidence of the higher margins of Islamic banks compared to those of conventional banks. Further, the difference in bank margins between the two types of banks can be attributed to differences in market power, operating costs, and diversification. Finally, Islamic banking presence or penetration, as represented by the ratio of Islamic financing to aggregate bank credit/financing and, alternatively, the share of Islamic banking assets, is robustly associated with lower bank margins, on average. These results bear important implications for the development of the Islamic banking industry and in fostering the efficient allocation of financial resources by the banking system.

We assess potential roles of recent oil price swings in macro-financial linkages for the case of the Gulf Cooperation Council (GCC) countries using bank-level panel data from 2000-2016. Employing both dynamic panel and panel VAR modelling, we document evidence indicating significant implications of oil price changes on the GCC financial and real sectors and significant macro-financial linkages. The results are robust in suggesting favourable effects of positive oil price changes on bank profitability, credit growth and output growth. Likewise, we document robust evidence indicating immediate contraction in credit growth, deterioration in credit quality and decline in economic growth following negative oil price changes. We also note that the implications of oil price changes tend to be felt more strongly by small banks. Finally, we find substantial causal interactions between output growth and bank variables, notable of which are robust findings of significant responses of (i) credit growth and bank profitability to business cycle and (ii) business cycle to credit quality. With the documented roles of oil prices on macro-financial linkages, the oil market developments should be monitored closely and, in anticipation of oil price drops, attention should be given to maintaining lending activity as well as safeguarding banks' financial soundness such that the contraction of real activity can be contained.

This paper analyzes the oil price risk in four ASEAN markets using a two-factor "market and oil" model and EGARCH(1, 1) variance specification. In the analysis, three alternative non-linear measures of oil prices are used and robustness check of basic results is also performed. The results suggest a direct relation between oil price changes and stock market returns and indicate no evidence for asymmetric oil price risk for Indonesia. Meanwhile, the asymmetric oil price risk seems apparent for the markets of Malaysia, Singapore and Thailand. For an oil exporting Malaysia, the oil price decline tends to compromise its market performance while the oil price increase does not seem to be beneficial. In contrast, for oil-importing Singapore and Thailand, the oil price shocks tend to adversely affect their market returns. The contrasting experiences of these markets in the face of oil price fluctuations are attributed to the degree of oil dependency, level of financial development, and trade openness.

This study investigates the impact of bank concentration and financial development on economic volatility for the Organization of Islamic Cooperation (OIC) member countries. Employing dynamic panel models, we find no evidence that bank concentration is significantly related to economic volatility when it is entered independently in the models. Meanwhile, financial development lowers economic volatility. Extending the models to include market structure - financial development interaction, we note that the impact of bank concentration on volatility depends on the level of financial development within OIC countries. More specifically, the volatility-increasing effect of bank concentration tends to be moderated by financial development. Accordingly, in the wake of banking sector consolidation in these countries, policymakers and regulators in OIC countries should focus on further developing their financial markets such that the negative consequences of resulting market concentration can be mitigated.

The Islamic banking sector has ascended to be systematically important in several OIC countries particularly in Malaysia and the GCC. Globally, the sector has recorded a double digit growth rate far exceeding the growth rate of its conventional counterpart. Its sustained growth in the provision of financial services founded on Islamic principles even during crisis episodes, especially duting the recent global financial crisis, makes Islamic banking gain traction even in the non-Muslim world. Over recent years, it has made its presence in such countries as Switzerland, the UK, and the USA.

This study investigates the impact of lending structure on the insolvency risk exposure. A comparative analysis between the insolvency risk behavior between the Islamic and conventional banks is made. Our findings show that real estate lending is positively related to the conventional banks’ risk, but inversely related to the Islamic banks’ risk exposure. Thus, the policy makers as well as the banks should react accordingly in the decision making process.

This paper investigates the presence of financial constraints among firms in Malaysia using firm level panel data analysis. The empirical results based on panel GMM demonstrate that financial constraints are present in the market, which indicate that the firms are unable to access to external forms of financing. In addition, the presence also signifies the presence of asymmetric information problem between the firm and its financer. Thus, the neoclassical investment theory which based on assumption of complete information such that only factor prices and technology determine firm’s desired capital stock is simply rejected. Eventually, their investments are much affected by fluctuations in their cash flows or retained earnings.

The paper examines the exchange rate exposure of the Indonesian national market, the Indonesia Stock Exchange, for the 1988-2009 period using an EGARCH(1, 1) model. The evidence indicates negative exposure of the Indonesian market to variations in the rupiah-dollar exchange rate. Moreover, applying a rolling regression technique, the exposure is found to be more negative in recent years. Thus, the rupiah-dollar depreciation tends to have an adverse impact on the Indonesian market. These results seem to be robust across specifications of the mean equation. Finally, our exploratory exercises indicate the potential importance of current account and financial variables particularly current account balance, financial account balance, financial development, and financial openness in explaining changing exchange rate exposure. However, their relations with the exposure seem intriguing and may be more complex than we thought.

The emergence of Islamic finance in the global financial scene has attracted much scholarly interest, leading to a plethora of studies examining the roles of Islamic finance in the economy. Generally, studies on Islamic finance focus on four areas - Islamic banking, Islamic capital markets, takaful and other Islamic finance. Among these, Islamic banking has received the most attention, with the primary focus on comparing Islamic with conventional banking based on performance. Studies in Islamic capital markets have centred on issues related to the performance and benefits of investment in Shari'ah-compliant shares and sukuk (Islamic bonds). Most recently, some attention has also been given to takaful and the so-called Islamic social finance, mainly zakat and awqaf.

The slides highlight 1) the importance of risk-taking; 2) variables - risk-taking, bank-specific, macroeconomic, and regulation of the study.

The issue of liquidity and underdevelopment of the Organisation of Islamic Cooperation (OIC) stock markets has caused problems to companies in those countries that seek higher equity capital. One way out of this problem is to employ international markets more intensively by seeking cheaper cost of capital through Depositary Receipts (DRs). Many studies on DRs focused on emerging and developed countries, leaving many OIC countries behind. Thus, this study investigates the financial implication by examining the integration of returns of local and foreign stock markets via American Depositary Receipts (ADRs) and Global Depositary Receipts (GDRs) of OIC countries. Techniques employed in this study are cointegration and the speed of adjustments to examine the existence of integration between the local and foreign stock markets. The study covers a sample of 146 firms from 17 OIC countries that are cross-listed as ADRs or GDRs from 1992 to 2011. The findings show mixed results when some markets provide evidence of integration while others show evidence of segmentation. The study on the integration between DR and home equity markets has practical implications for both the international as well as domestic investors especially on portfolio selection, asset pricing and risk management