Measuring Bank Stability: A Comparative Analysis Between Islamic and Conventional Banks in Malaysia

The purpose of this study is to determine there is a difference of efficiency in terms of income and intermediation between shariah banks and conventional banks during 2012-2015. Efficiency is a measure of bank performance which describes the optimal output level conditions with the level of the current input. The measurement of efficiency in this study usesDEA with CRS assumption. This study uses 22 shariah banks and conventional banks which are the same size in terms of core capital, grouped based on corresponding business activities banks group (BUKU). Then, they are tested by using different independent sample t-test andMann-Whitney Test. Financial performance assessment for the banks uses four input variables and four output variables. A comparative analysis conducted showed that there were no differences in the efficiency of shariah banks and conventional banks. While on the intermediation there are significant differences between the two groups of banks.

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Comparative Analysis of Islamic and Conventional Banks: A Case Study from Malaysia

Journal of Islamic Financial Studies ◽

10.12785/jifs/020209 ◽

2016 ◽

Vol 2 (2) ◽

pp. 85-93 ◽

Cited By ~ 2

Author(s):

Kiran Javaria

Keyword(s):

Comparative Analysis ◽

Conventional Banks

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Regulatory capital and stability of Islamic and conventional banks

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-06-2016-0079 ◽

2017 ◽

Vol 10 (3) ◽

pp. 312-330 ◽

Cited By ~ 6

Author(s):

Fakhri Korbi ◽

Khemaies Bougatef

Keyword(s):

Islamic Banks ◽

Regulatory Capital ◽

Bank Stability ◽

Content Type ◽

Failure Risk ◽

Negative Effect ◽

The Difference ◽

Conventional Banks ◽

The Stability ◽

The Relationship

Purpose The purpose of this paper is twofold. First, it attempts to determine the factors that influence the stability of Islamic and conventional banks. Second, it focuses on the relationship between the regulatory capital and bank soundness. Design/methodology/approach Thus, the authors use the Z-score to assess the stability of Islamic and conventional banks operating in the Middle East and North Africa region over the period 1999 to 2014. Findings The comparative analysis reveals that Islamic banks seem to be less stable than their conventional peers. With regard to the determinants of bank stability, the findings suggest that the regulatory capital represents the primordial factor that reinforces the soundness of banking systems. The authors also find that bank stability depends on both bank-specific variables as well as macroeconomic and institutional variables. Interestingly, the corruption level turns out to have a significant negative effect on financial strength in the both types of banks. Originality/value The authors believe that investigating the relationship between regulatory capital and the failure risk in a comparative study between Islamic and conventional banks deserves a particular attention and looks very interesting because it will allow them to identify the difference between the factors explaining the failure risk of each type of banks. The authors also believe that the analysis of the relationship between corruption and bank stability is very interesting because corruption can be seen as an example of moral hazard which forces Islamic banks to use non-PLS instruments.

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Examining the relationship between bank stability and earnings quality in Islamic and conventional banks

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-10-2018-0328 ◽

2020 ◽

Vol 13 (5) ◽

pp. 803-826

Author(s):

Youssef Riahi

Keyword(s):

Earnings Quality ◽

Gulf Cooperation Council ◽

Net Income ◽

Loan Loss ◽

Bank Stability ◽

Content Type ◽

Banking Stability ◽

Conventional Banks ◽

The Impact ◽

Practical Implications

Purpose The purpose of this paper is to investigate the effect of earnings quality on banking stability in Gulf Cooperation Council countries. First, the author isolates the discretionary loan loss provision (DLLP) to investigate the impact of total LLP, DLLP, discretionary accruals and a small positive variation in net income on bank stability. Second, the author investigates differences that may exist between Islamic banks (IBs) and conventional banks (CBs) in terms of the impact of DLLP on bank stability. Design/methodology/approach This research is based on unbalanced panel data for 39 IBs and 64 CBs in the six Gulf Cooperation Council countries over the 2000–2014 period. Findings The findings indicate that the extent of stability is negatively associated with the level of DLLP. This study also found significant differences between the two banking sectors in the effect of DLLP on bank stability. Practical implications This study has various practical implications. First, it provides insights for governments and regulators about introducing instruments like borrower restrictions and dynamic provisions to reduce LLP, because it negatively affects banking stability. Second, bankers should carefully assess the effects of their LLP strategies to overcome any negative effects. Third, the findings are also relevant to shareholders, investors and bank customers. More specifically, the results will help to improving their understanding of how LLP is not a financial strength and it is subject to managers’ opportunism that can lead to a financial instability. Finally, this study’s results encourage researchers to investigate an unexplored question, namely, the procyclicality of LLP and its determinants and effects. Originality/value To the best of the author’s knowledge, this is the first study to investigate differences that may exist between Islamic and CBs in terms of the impact of DLLP on bank stability.

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