Dual Market Competition and Deposit Rate Setting in Islamic and Conventional Banks

41 Pages Posted: 20 Jul 2016

See all articles by Céline Meslier

Céline Meslier

Universite de Limoges, LAPE

Tastaftiyan Risfandy

Sebelas Maret University - Faculty of Economics and Business

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Date Written: July 15, 2016

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

JEL Classification: G21, G28

Suggested Citation

Meslier, Celine and Risfandy, Tastaftiyan and Tarazi, Amine, Dual Market Competition and Deposit Rate Setting in Islamic and Conventional Banks (July 15, 2016). Available at SSRN: https://ssrn.com/abstract=2811691 or http://dx.doi.org/10.2139/ssrn.2811691

Celine Meslier

Universite de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

Tastaftiyan Risfandy (Contact Author)

Sebelas Maret University - Faculty of Economics and Business ( email )

Jl. Ir Sutami 36 A, Kentingan
Surakarta, Jawa Tengah 57126
Indonesia

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

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