Steady State and Efficiency Convergence Dynamics in Alternative Banking Systems: The Cases of Islamic and Community Banks

44 Pages Posted: 16 Sep 2019

See all articles by Marwan Izzeldin

Marwan Izzeldin

Lancaster University Management School

Jill Johnes

University of Huddersfield

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Vasileios Pappas

University of Kent, Kent Business School

Efthymios G. Tsionas

Lancaster University

Date Written: September 6, 2019

Abstract

This paper compares the efficiency dynamics of Islamic and community banks relative to their conventional counterparts. We employ parametric and non-parametric methods to analyze: i) a cross-country panel of Islamic and conventional banks from 23 countries; and, ii) a panel of community and conventional banks from the US. Parametric methods find no significant differences between the steady states and convergence rates for Islamic and conventional banks, but reveal distinctive patterns between community and conventional banks. To identify factors pertaining to these observed differences, we subject both data sets to further analyses. For the cross-country panel, factors like financial depth, transparency, economic stability and banking concentration can explain the different steady state levels and convergence rates between Islamic and conventional banks across sample countries. For the US panel, efficiency and liquidity creation compete as objectives for conventional banks, while liquidity creation is not penalized in steady state efficiency terms among community banks. In addition, for these banks steady state efficiency is positively related with profitability and negatively with capitalization.

Keywords: Efficiency convergence, Community banks, Conditional β-convergence, Islamic banks, Classification trees

JEL Classification: G21, F36, D24

Suggested Citation

Izzeldin, Marwan and Johnes, Jill and Ongena, Steven R. G. and Pappas, Vasileios and Tsionas, Efthymios G., Steady State and Efficiency Convergence Dynamics in Alternative Banking Systems: The Cases of Islamic and Community Banks (September 6, 2019). Available at SSRN: https://ssrn.com/abstract=3449215 or http://dx.doi.org/10.2139/ssrn.3449215

Marwan Izzeldin

Lancaster University Management School ( email )

Lancaster, LA1 4YX
United Kingdom
01524 594674 (Phone)

HOME PAGE: http://www.lums.lancs.ac.uk/profiles/marwan-izzeldin/

Jill Johnes

University of Huddersfield ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vasileios Pappas (Contact Author)

University of Kent, Kent Business School ( email )

Canterbury, Kent CT2 7PE
United Kingdom

Efthymios G. Tsionas

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

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