Competition and market structure of the Malaysian Islamic banking industry

Mohd Faizal Basri

Journal of Islamic Accounting and Business Research, 2020, vol. 11, issue 3, 721-740

Abstract: Purpose - This paper aims to investigate the impact of competition in the Malaysian Islamic banking industry and the market structure of the industry by focusing on the particular impact created by the entrance of fully fledged foreign Islamic banks plus the introduction of Islamic subsidiaries of existing conventional banks in the country (domestic and foreign ownership). Design/methodology/approach - Using a sample of 16 Islamic banks in the country that operated between 2008 and 2015, this paper measures the competition among the Islamic banks using the Panzar-Rosse Model and by looking at the market structure of the industry using the k-bank concentration ratio and the Herfindahl-Hirschman Index. Findings - The study found that between 2008 and 2015, the Malaysian Islamic banking industry operated in monopolistic competition conditions with a moderately concentrated market structure. The introduction of foreign Islamic banks caused the market structure to become more competitive and less concentrated by comparing the results that include foreign Islamic banks against the results generated with a subsample of domestic Islamic banks only. Bank Negara Malaysia’s (BNM’s) financial reform and the liberalisation of the financial system were proven to induce competition making the financial system more resilient, competitive and dynamic. The Islamic banks have recorded consistently increased annual performance with the under-performing Islamic banks catching up on the top performers. Originality/value - Very few research studies have focused on the market structure and competition of the Islamic banking industry in Malaysia, especially using recent financial data; this study will contribute to filling the existing gap.

Keywords: Panzar-Rosse; HHI; Concentration ratio; Competition; Market structure; Islamic bank (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-08-2017-0127

DOI: 10.1108/JIABR-08-2017-0127

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