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Dual market competition and deposit rate setting in Islamic and conventional banks

Céline Meslier, Tastaftiyan Risfandy and Amine Tarazi

Economic Modelling, 2017, vol. 63, issue C, 318-333

Abstract: This paper addresses the issue of competition in dual banking markets by analyzing the determinants of deposit rates in Islamic and conventional banks. Using a sample of 20 countries with dual banking systems over the 2000–2014 period, our results show significant differences in the drivers of Islamic and conventional banks' pricing behavior. Conventional banks with stronger market power set lower deposit rates but market power is not significant for Islamic banks. In predominantly Muslim environments, conventional banks set higher deposit rates and further higher when their market power is lower. Whereas conventional banks are influenced by the competitiveness of Islamic banks, Islamic banks are only affected by their peers in predominantly Muslim countries. Our findings have important implications regarding competition and bank stability in dual banking markets.

Keywords: Deposit rate; Competition; Dual banking market; Islamic and conventional banks (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Dual Market Competition and Deposit Rate Setting in Islamic and Conventional Banks (2017)
Working Paper: Dual Market Competition and Deposit Rate Setting in Islamic and Conventional Banks (2016) Downloads
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