Factors of Competitiveness of Islamic Banks in the New Financial Order

Abstract

This paper studies the factor of competitive conditions of conventional and Islamic banks operating in the same market in the MENA region. We determine the level of competitiveness between the two types of banks by using the PR-H statistic of Panzar and Ross (1987) and the Lerner index. Our estimations show that banking sectors in MENA operate under monopolistic competition. Our results confirm that Islamic banks are significantly more competitive than conventional banks and they express a higher degree of market power. We show also that profitability significantly increases with market power, but this does not warrant higher profitability levels for Islamic banks.

Islamic banks, Market Structure, Bank Competition, profitability.