Market structure and bank performance: Empirical evidence of Islamic Banking in Indonesia

Abstract

The relationship between market structure and bank performance has been studied extensively in various countries, some of those using a structure-conduct-performance (SCP) approach. Previous studies showed that market structure was found to be one of the main factors of bank performance. Most of the study primarily focused on conventional banking industry, while the study of relationship between market structure and performance of the Islamic Banks in Indonesia is very limited. The purpose of this study was to examine the relationship between market structure and performance of the Islamic Banks in Indonesia, for a period of 12 years from year 1999 to 2011, using regression panel data analysis. The result of this study indicate the significant relationship between market concentration (HHI) with Return of Equity (ROE) of Islamic Banks in Indonesia. Number of Sharia Business Unit has a positive effect on Return on Assets (ROA) and ROE of Islamic Banks in Indonesia. Meanwhile the firm ownership did not show any significant relationship to ROE and ROA of Islamic Banks in Indonesia. © the author(s).