A CONCEPTUAL THOUGHT: HOW DOES THE PERFORMANCE OF FOREIGN ISLAMIC AND CONVENTIONAL BANKS DIFFER BY BANK SIZE?
DOI:
https://doi.org/10.33102/0sh5sd33Keywords:
Ownership, Islamic Banks, Bank Size, Performance, Foreign banksAbstract
This conceptual paper aims to highlight the importance of examining the influence of bank size on Islamic and conventional banks’ performance differently due to the fundamental differences in both types of banks. Aside from this, this paper also aims to call attention to the influence of bank size on foreign Islamic and foreign conventional banks. Unlike domestic banks, foreign banks can be subjected to diseconomies when operating or monitoring an institution from a distance. Hence, an increase in foreign bank size may result in even greater complexity for foreign banks, which may negatively affect their performance. Due to the relatively lack of experience in foreign expansion of foreign Islamic banks in comparison to foreign conventional banks, increasing a foreign Islamic bank's size may have a significant negative influence on its performance. On the other hand, as many foreign conventional banks started expanding into foreign territory much earlier than foreign Islamic banks, they may be less affected by agency costs associated with being a foreign entity and can have significantly higher performance with the increase of bank size due to economies of scale. Due to the differences in foreign Islamic and foreign conventional banks, this study calls upon researchers to examine the influence of bank size on foreign Islamic and conventional banks.
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