Publication:
Financial intermediation costs in Islamic banks: the role of bank-specific, market-specific and institutional-governance factors
Abstract
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.
Keywords
Financial intermediation , Islamic banking , Islamic finance , Islamic countries
Citation
Abdul Kader Malim, N. (2015). Financial intermediation costs in Islamic banks: the role of bank-specific, market-specific and institutional-governance factors (Doctoral dissertation). INCEIF, Kuala Lumpur. Retrieved from https://ikr.inceif.edu.my/handle/INCEIF/2415
Publisher
INCEIF
Available in physical copy only (Call Number: t HG 3891.5 N974)