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The Relationship between Conventional Deposit and Islamic Profit Share Rates: An Analysis of the Turkish Banking Sector العلاقة بين الإيداعات التقليدية ومعدلات الأرباح الإسلامية: تحليل للقطاع المصرفي التركي

Author

Listed:
  • Husnu Tekin

    (Ph.D. Scholar, Department of Islamic Economics and Finance, Istanbul University)

  • Burak Sencer Atasoy

    (Senior Associate, Turkish Treasury)

  • Hasan Murat Ertugrul

    (Senior Associate, Turkish Treasury)

Abstract

Islamic finance came to prominence in the last two decades and Islamic instruments have been regarded as an alternative to conventional instruments after the 2008 crisis. In this study, we tried to analyze the relationship between conventional deposit rates and profit share rates of participation banks (Islamic banks) in Turkey by employing both static modeling tools including ARDL, FMOLS and DOLS models and dynamic modeling tools including DCC-GARCH models using monthly data from Turkey covering the 1998-2016 period. According to our knowledge, this is the first study that employs a dynamic model to investigate the relationship between conventional deposit rates and profit share rates of participation banks. Accordingly, it is found that conventional deposit rates significantly affect profit share rates and the dynamic correlation between conventional deposit rates and profit share rates is generally stable around 0.9 when the markets are not disturbed by shocks or crises. Nevertheless, the correlation dramatically fluctuates during periods of stress. Our model managed to capture the effects of the two financial crises (2001 and 2008) on deposit and profit share rates indicating that the correlation between the two rates plummets during crisis periods. However, despite some similarities during the 2001 and 2008 crises, the behavior of the correlation completely differs during the two recovery periods. The correlation recovered pretty fast during the 2001 crisis and remained stable for almost 9 years. As for the 2008 crisis, the correlation recovered rather slowly (in 14 months) and has failed to stabilize since then. In our opinion, this distinction arises due to the ongoing unfavorable political and economic conditions in neighboring countries and the EU members who are the main trade partners of Turkey. برز التمويل الإسلامي في العقدين الماضيين، واعتبرت الأدوات الإسلامية بديلا للأدوات التقليدية بعد أزمة عام 2008م. في هذه الدراسة، حاولنا تحليل العلاقة بين معدلات الودائع التقليدية ومعدلات الأرباح في بنوك المشاركة (البنوك الإسلامية) في تركيا من خلال استخدام أدوات النمذجة الثابتة كنماذج أردل (ARDL) و فمولس (FMOLS) و دولس (DOLS) وأدوات النمذجة الديناميكية كنموذج دسس-غارتش (DCC-GARCH) باستخدام البيانات الشهرية في تركيا التي تغطي الفترة 1998م إلى 2016م. حسب علمنا، هذه الدراسة هي الأولى التي توظف نموذجا ديناميكيًا لبحث العلاقة بين معدلات الودائع التقليدية ومعدلات الأرباح في بنوك المشاركة. وتبعا لذلك، فقد وجدنا أن معدلات الودائع التقليدية تؤثر بشكل كبير على معدلات الربح، كما أن العلاقة الديناميكية بين معدلات الودائع التقليدية ومعدلات الربح مستقرة عموما حول (0.9) عند استقرار الأسواق وعدم تأثرها بالصدمات أو الأزمات. ومع ذلك، فإن الارتباط يتذبذب بشكل كبير خلال فترات التوتر. وقد تمكن هذا النموذج من التعرف على آثار الأزمتين الماليتين (2001م و 2008م) على معدلات الودائع والربح، مما يشير إلى أن العلاقة بين المعدلين تنخفض خلال فترات الأزمات. وعلى الرغم من بعض أوجه الشبه بين الأزمتين 2001م و 2008م، فإن مستوى الارتباط يختلف تماما خلال فترتي الانتعاش. ففي أزمة عام 2001م استعادت الارتباطات بسرعة كبيرة وظلت مستقرة ما يقرب من 9 سنوات. أما بالنسبة لأزمة 2008م، فقد استعادت الارتباطات ببطء شديد (في 14 شهرا) وفشلت في الاستقرار منذ ذلك الحين. وفي رأينا أن هذا التمييز ينشأ بسبب الظروف السياسية والاقتصادية الحالية غير المواتية في البلدان المجاورة وأعضاء الاتحاد الأوروبي الشركاء التجاريون الرئيسيون لتركيا.

Suggested Citation

  • Husnu Tekin & Burak Sencer Atasoy & Hasan Murat Ertugrul, 2017. "The Relationship between Conventional Deposit and Islamic Profit Share Rates: An Analysis of the Turkish Banking Sector العلاقة بين الإيداعات التقليدية ومعدلات الأرباح الإسلامية: تحليل للقطاع المصرفي ," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 30(SI), pages 103-117, April.
    • Handle: RePEc:abd:kauiea:v:30:y:2017:i:4:no:7:p:103-117
    DOI: 10.4197/Islec.30-SI.7
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    Cited by:

    1. Yıldırım, Durmuş Çağrı & Esen, Ömer & Ertuğrul, Hasan Murat, 2022. "Impact of the COVID-19 pandemic on return and risk transmission between oil and precious metals: Evidence from DCC-GARCH model," Resources Policy, Elsevier, vol. 79(C).
    2. Munawar Iqbal, 2017. "Development of Islamic Economics and Finance and the Role of International Conferences تنمية الاقتصاد والتمويل الإسلامي ودور المؤتمرات الدولية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 30(SI), pages 3-14, April.
    3. repec:abd:kauiea:v:30:y:2017:i:4:p:3-14 is not listed on IDEAS
    4. Saeed, Shifa Mohamed & Abdeljawad, Islam & Hassan, M. Kabir & Rashid, Mamunur, 2023. "Dependency of Islamic bank rates on conventional rates in a dual banking system: A trade-off between religious and economic fundamentals," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 1003-1021.
    5. repec:abd:kauiea:v:30:y:2017:i:4:p:103-117 is not listed on IDEAS

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    More about this item

    Keywords

    Islamic Finance; Banking; DCC-GARCH; ARDL; Profit Share Rates. التمويل الإسلامي، الخدمات المصرفية، معدلات الأرباح.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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