Competitive conditions in Islamic and conventional banking: A global perspective

I analyze the competitive conditions prevailing in Islamic and conventional global banking markets, and investigate the possible differences in profitability between these markets, using a sample of banks across 13 countries during 2000–2006. The results suggest that Islamic banks allocate a greater share of their assets to financing activities compared to conventional banks, and they are also better capitalized. Different computed measures of competition indicate that Islamic banking is less competitive compared to conventional banking. A second‐stage analysis shows that profitability significantly increases with market power, but this does not warrant higher profitability levels for Islamic banks.