Banking stability in the MENA region during the global financial crisis and the European sovereign debt debacle

2017 ◽  
Vol 18 (4) ◽  
pp. 381-397 ◽  
Author(s):  
Naama Trad ◽  
Houssem Rachdi ◽  
Abdelaziz Hakimi ◽  
Khaled Guesmi
Keyword(s):  
Global Financial Crisis ◽  
Islamic Banks ◽  
Mena Region ◽  
Data Set ◽  
Content Type ◽  
Negative Effect ◽  
Macroeconomic Effect ◽  
Conventional Banks ◽  
The Global Financial Crisis ◽  
Conventional And Islamic Banks

Purpose This paper aims to focus on the main determinants of the performance and stability-banking sector in the Middle East and North Africa (MENA) region during the global financial crisis. Using a data set of 13 countries with both of 77 Islamic and 101 conventional banks during the period 2006-2013, empirical results show that specific variables allow explaining the change in the level of performance and stability for conventional and Islamic banks. However, the effect of some banks’ characteristics is not the same for the two bank groups. For the macroeconomic effect, it is observed that inflation exerts a negative effect on the bank performance except for conventional banks when it increases the profitability. Design/methodology/approach Using a data set of 13 countries with both of 77 Islamic and 101 conventional banks (CvB) during the period 2006-2013 and performing the generalized method of moments (GMM) method, the findings provide comprehensive evidence for the bank systems studied which are of interest also to policy makers and practitioners. Findings The main finding is that after the international financial crises of 2008, many worldwide banks have been experiencing crises in contrast to Islamic banks (IsB) which remain Gen more stable and more profitable. Foreign banks had a higher degree of exposure to risk, given their higher number of subsidiaries in the developed economies. As for the determinants of profitability, the bank-specific variables allow to explain the change in the level of performance and stability for conventional and Islamic banks. However, the effect of some banks characteristics is not the same for the two bank groups. For the macroeconomic effect, it is observed that inflation exerts a negative effect on the bank performance except for CvB when it increases the profitability measured by the return on assets (ROA). It is also found that the growth rate acts positively when the dependent variable is the ROA and negatively when the performance is measured by return on equity. Originality/value The inflation rate exerts a negative effect only on the ROA. This study differs from previous contributions in that it is tested the hypothesis of determinants of bank profitability and stability for both conventional and Islamic banks in the MENA region. It is of great interest to both policymakers and investors, with respect to regional development policies and dedicated portfolio investment strategies in each emerging region respectively. The authors adopted several ratios from the empirical literature on bank profitability and stability. Using a data set of 13 countries with both of 77 Islamic and 101 CvB during the period 2006-2013 and performing the GMM method, the findings have significant contributions to the literature by comprehensively clarifying and critically analyzing the current state of profitability and stability for both banks.

How crisis-proof is Islamic finance?

2018 ◽  
Vol 10 (4) ◽  
pp. 415-426 ◽  
Author(s):  
Hasnan Baber
Keyword(s):  
Financial Crisis ◽  
Financial Crises ◽  
Global Financial Crisis ◽  
Islamic Finance ◽  
Islamic Banks ◽  
Actual Performance ◽  
Content Type ◽  
Current Financial Crisis ◽  
Conventional Banks ◽  
The Global Financial Crisis

PurposeThis paper aims to explore Islamic finance’s resilience in times of financial crisis and considers Islamic finance’s viability as an alternative to the current financial system.Design/methodology/approachEstablished on a review of theoretical aspects underlying the notion of Islamic finance being proficient of reducing the harshness of financial crises and a latent solution to financial volatility, this paper assesses actual performance of Islamic and conventional banks during and in the repercussion of the current financial crisis. Interviews were also conducted with managers of Islamic banks.FindingsThe paper concludes that performance of Islamic banks during the global financial crisis is found to be supportive of their argued resilience and consistency. However, the latest financial crisis has brought to light a number of theoretical and realistic issues that challenge Islamic finance and its absorbing capacity against financial crises.Originality/valueThe paper is an original work which suggests about moderating risks and proposing various ways in which the Islamic finance can be made more stable and resilient.

Liquidity risk determinants: Islamic vs conventional banks

2020 ◽  
Vol 63 (1) ◽  
pp. 65-95
Author(s):  
Ameni Ghenimi ◽  
Hasna Chaibi ◽  
Mohamed Ali Brahim Omri
Keyword(s):  
Liquidity Risk ◽  
Islamic Banks ◽  
Mena Region ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Banking Systems ◽  
Similarities And Differences ◽  
Conventional Banks ◽  
Risk Determinants ◽  
Conventional And Islamic Banks

Purpose This paper aims to identify and analyze the similarities and differences of the liquidity risk determinants within conventional and Islamic banks. Design/methodology/approach This study uses a dynamic panel data approach to examine the relationship between liquidity risk and a set of bank-specific and macroeconomic factors during 2005–2015, by selecting 27 Islamic banks and 49 conventional ones operating in the MENA region. More specifically, the dynamic two-step generalized method of moment estimator technique introduced by Arellano and Bond (1991) is applied. Findings The results suggest that the set of bank-specific variables influences the liquidity risk of both banking systems, while macroeconomic factors determine the liquidity risk of conventional banks. Islamic banks are not affected by macroeconomic determinants. Practical implications The research facilitates to the academicians, practitioners and bankers to have an alluded picture about liquidity risk determinants and their management. The findings can be used by bankers’ policy decision-makers to improve and enhance their consideration for liquidity risk management in both banking systems. Indeed, the study makes them aware to manage liquidity risk differently between conventional and Islamic banks, as the results reveal different liquidity risk determinants. Originality/value Compared to the abundant studies on the determinants of credit risk, researchers have not sufficiently addressed the factors influencing liquidity risk. Moreover, none of these few research studies has discussed and compared liquidity risk determinants within both banking systems operating in the Middle East and North Africa (MENA) region. This leads us to identify the similarities and differences between conventional and Islamic banks in the MENA region in respect of systematic and unsystematic determinants of the liquidity risk. The value is attributed to the increasing differentiation between Islamic and conventional banks. Islamic banks are characterized with a different liquidity structure distinguishing them from their conventional counterparts.

Financial distress determinants among SMEs: empirical evidence from Sweden

2020 ◽  
Vol 47 (3) ◽  
pp. 547-560 ◽  
Author(s):  
Darush Yazdanfar ◽  
Peter Öhman
Keyword(s):  
Financial Crisis ◽  
Financial Distress ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Binary Logistic Regression ◽  
Data Availability ◽  
Cross Sectional ◽  
Data Set ◽  
Content Type ◽  
The Global Financial Crisis

PurposeThe purpose of this study is to empirically investigate determinants of financial distress among small and medium-sized enterprises (SMEs) during the global financial crisis and post-crisis periods.Design/methodology/approachSeveral statistical methods, including multiple binary logistic regression, were used to analyse a longitudinal cross-sectional panel data set of 3,865 Swedish SMEs operating in five industries over the 2008–2015 period.FindingsThe results suggest that financial distress is influenced by macroeconomic conditions (i.e. the global financial crisis) and, in particular, by various firm-specific characteristics (i.e. performance, financial leverage and financial distress in previous year). However, firm size and industry affiliation have no significant relationship with financial distress.Research limitationsDue to data availability, this study is limited to a sample of Swedish SMEs in five industries covering eight years. Further research could examine the generalizability of these findings by investigating other firms operating in other industries and other countries.Originality/valueThis study is the first to examine determinants of financial distress among SMEs operating in Sweden using data from a large-scale longitudinal cross-sectional database.

Is Islamic bank profitability driven by same forces as conventional banks?

2016 ◽  
Vol 9 (1) ◽  
pp. 46-66 ◽  
Author(s):  
Hajer Zarrouk ◽  
Khoutem Ben Jedidia ◽  
Mouna Moualhi
Keyword(s):  
Dynamic Panel Data ◽  
Islamic Banking ◽  
Subprime Crisis ◽  
Islamic Banks ◽  
Mena Region ◽  
Bank Profitability ◽  
Content Type ◽  
Large Sample ◽  
Islamic Bank ◽  
Conventional Banks

Purpose The purpose of this paper is to ascertain whether Islamic bank profitability is driven by same forces as those driving conventional banking in the Middle East and North Africa (MENA) region. Distinguished by its principles in conformity with sharia, Islamic banking is different from conventional banking, which is likely to affect profitability. Design/methodology/approach The paper builds on a dynamic panel data model to identify the banks’ specific determinants and the macroeconomic factors influencing the profitability of a large sample of 51 Islamic banks operating in the MENA region from 1994 to 2012. The system-generalized method of moment estimators are applied. Findings The findings reveal that profitability is positively affected by banks’ cost-effectiveness, asset quality and level of capitalization. The results also indicate that non-financing activities allow Islamic banks to earn higher profits. Islamic banks perform better in environments where the gross domestic product and investment are high. There is evidence of several elements of similarities between determinants of the profitability for Islamic and conventional banks. The inflation rate, however, is negatively associated with Islamic bank profitability. Practical Implications The authors conclude that profitability determinants did not differ significantly between Islamic and conventional banks. Many factors are deemed the same in explaining the profitability of conventional as well as Islamic banks. The findings reported in the current paper might be of interest for policy makers. It is recommended to better implement non-financing activities to improve Islamic bank profitability. Originality/value Unlike the previous empirical research, this empirical investigation assesses the issue whether Islamic banks profitability is influenced by same factors as conventional model. It enriches the literature in this regard by considering the specificities of Islamic banking to identify the determinants of profitability. Moreover, this study considers a large sample (51 Islamic banks) through a different selection of countries/banks than previous studies. In addition, the period of study considers the subprime crisis insofar it ranges from 1994 to 2012. Hence, this broader study allows the authors to draw more consistent conclusions.

How firms borrow in international bond markets

2018 ◽  
Vol 26 (1) ◽  
pp. 135-169
Author(s):  
Alberto Fuertes ◽  
Jose María Serena
Keyword(s):  
Emerging Economies ◽  
Design Methodology ◽  
Choice Behavior ◽  
Global Financial Crisis ◽  
Securities And Exchange Commission ◽  
Bond Markets ◽  
Data Set ◽  
Content Type ◽  
Parametric Analyses ◽  
The Global Financial Crisis

Purpose This paper aims to investigate how firms from emerging economies choose among different international bond markets: global, US144A and Eurobond markets. The authors explore if the ranking in regulatory stringency –global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – leads to a segmentation of borrowers. Design/methodology/approach The authors use a novel data set from emerging economy firms, treating them as consolidated entities. The authors also obtain descriptive evidence and perform univariate non-parametric analyses, conditional and multinomial logit analyses to study firms’ marginal debt choice decisions. Findings The authors show that firms with poorer credit quality, less ability to absorb flotation costs and more informational asymmetries issue debt in US144A and Eurobond markets. On the contrary, firms issuing global bonds – subject to full Securities and Exchange Commission requirements – are financially sounder and larger. This exercise also shows that following the global crisis, firms from emerging economies are more likely to tap less regulated debt markets. Originality/value This is, to the authors’ knowledge, the first study that examines if the ranking in stringency of regulation – global bonds have the most stringent regulations and Eurobonds have the most lenient regulations – is consistent with an ordinal choice by firms. The authors also explore if this ranking is monotonic in all determinants or there are firm-specific features which make firms unlikely to borrow in a given market. Finally, the authors analyze if there are any changes in the debt-choice behavior of firms after the global financial crisis.

Macroeconomic shocks, fragility and home financing in Malaysia: can rental index be the answer?

2018 ◽  
Vol 9 (1) ◽  
pp. 17-44 ◽  
Author(s):  
Rosylin Mohd Yusof ◽  
Farrell Hazsan Usman ◽  
Akhmad Affandi Mahfudz ◽  
Ahmad Suki Arif
Keyword(s):  
Interest Rates ◽  
Islamic Banks ◽  
Macroeconomic Shocks ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
Rental Rate ◽  
Conventional Banks ◽  
The Impact ◽  
Conventional And Islamic Banks

Purpose This study aims to investigate the interactions among macroeconomic variable shocks, banking fragility and home financing provided by conventional and Islamic banks in Malaysia. Identifying the causes of financial instability and the effects of macroeconomic shocks can help to foil the onset of future financial turbulence. Design/methodology/approach The autoregressive distributed lag bound-testing cointegration approach, impulse response functions (IRFs) and forecast error variance decomposition are used in this study to unravel the long-run and short-run dynamics among the selected macroeconomic variables and amount of home financing offered by both conventional and Islamic banks. In addition, the study uses Granger causality tests to investigate the short-run causalities among the selected variables to further understand the impact of one macroeconomic shock to Islamic and conventional home financing. Findings This study provides evidence that macroeconomic shocks have different long-run and short-run effects on amount of home financing offered by conventional and Islamic banks. Both in the long run and short run, home financing provided by Islamic banks is more linked to real sector economy and thus is more stable as compared to home financing provided by conventional banks. The Granger causality test reveals that only gross domestic product (GDP), Kuala Lumpur Syariah Index (KLSI)/Kuala Lumpur Composite Index (KLCI) and house price index (HPI) are found to have a statistically significant causal relationship with home financing offered by both conventional and Islamic banks. Unlike the case of Islamic banks, conventional home financing is found to have a unidirectional causality with interest rates. Research limitations/implications This study has focused on analyzing the macroeconomic shocks on home financing. However, this study does not assess the impact of financial deregulation and enhanced information technology on amount of financing offered by both conventional and Islamic banks. In addition, it is not within the ambit of this present study to examine the effects of agency costs and information asymmetry. Practical implications The analysis of cointegration and IRFs exhibits that in the long run and short run, home financing provided by Islamic banks are more linked to real sector economy like GDP and House Prices (HPI) and therefore more resilient to economic vulnerabilities as compared to home financing provided by conventional banks. However, in the long run, both conventional and Islamic banks are more susceptible to fluctuations in interest rates. The results of the study suggest that monetary policy ramifications to improve banking fragility should focus on stabilizing interest rates or finding an alternative that is free from interest. Social implications Because interest plays a significant role in pricing of home loans, the potential of an alternative such as rental rate is therefore timely and worth the effort to investigate further. Therefore, Islamic banks can explore the possibility of pricing home financing based on rental rate as proposed in this study. Originality/value This paper examines the unresolved issues in Islamic home financing where Islamic banks still benchmark their products especially home financing, to interest rates in dual banking system such as in the case of Malaysia. To the best of the authors’ knowledge, studies conducted in this area are meager and therefore is imperative to be examined.

How does bank liquidity creation affect non-performing loans in the MENA region?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anas Alaoui Mdaghri
Keyword(s):  
Generalized Method Of Moments ◽  
Balance Sheet ◽  
Policy Implications ◽  
Mena Region ◽  
Policy Makers ◽  
Content Type ◽  
Mena Countries ◽  
Negative Effect ◽  
Short And Long Term ◽  
Conventional Banks

PurposeThe study aims to empirically examine the effect of bank liquidity creation on non-performing loans (NPLs) in the Middle East and North Africa (MENA) region.Design/methodology/approachBerger and Bouwman's (2009) three-step methodology was employed to calculate the level of liquidity creation of a selected sample of 111 commercial banks in ten MENA countries from 2010–2017. Next, the two-step system generalized method of moments (GMM) estimator was used to investigate the linkage between bank liquidity creation and NPLs.FindingsThe results demonstrated a significant negative effect of bank liquidity creation on NPLs in the short and long term, implying that liquidity creation through both on- and off-balance sheet activities decreases NPLs. These findings accord with the “economic-enhancing” view. Furthermore, regression analysis investigated whether this relationship remained similar for Islamic and conventional banks. The results showed that liquidity creation diminishes Islamic and conventional bank NPLs.Research limitations/implicationsThe empirical findings raise several significant policy implications. Bank liquidity creation may decrease rather than increase NPLs, although the process of liquidity creation is viewed as risky by rendering banks more illiquid. Therefore, policy-makers should encourage bank liquidity creation to stimulate the economy. In a robust economy, borrowers are more likely to repay their debts, consequently diminishing banks' NPLs.Originality/valueTo the best of the author's knowledge, the current study is the first to provide empirical evidence on the effect of bank liquidity creation on NPLs in MENA countries.

The validity of the irrelevant theory in Middle East and North African markets: conventional banks versus Islamic banks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Akram Ramadan Budagaga
Keyword(s):  
Middle East ◽  
Fixed Effects ◽  
Positive Impact ◽  
Islamic Banks ◽  
Dividend Yield ◽  
Mena Region ◽  
Content Type ◽  
Mena Countries ◽  
Growth Opportunity ◽  
Conventional Banks

Purpose The purpose of this paper is to test the validity of irrelevant theory empirically by exploring the relationship between cash dividends, profitability, leverage and investment policy with the value of banking institutions in the Middle East and North Africa (MENA) markets. Design/methodology/approach The paper adopts Ohlson’s (1995) valuation model. The author estimates models by using static panel (random and fixed effects) techniques and the dynamic technique, namely, the GMM estimation. The empirical study covers a sample of 122 conventional and 37 Islamic banks listed on stock markets in 12 MENA countries over the period 1999–2018. Findings The empirical results show that dividend yield has no significant association with the value of conventional banks, whereas profitability, growth opportunity and leverage have a significant positive impact on the value of conventional banks. In contrast, the results for a sample of Islamic banks indicate that the dividend yield, profitability and leverage have a significant positive effect on the value of Islamic banks, whereas growth opportunity has no significant effect on the value of Islamic banks. Therefore, these results support, to a greater extent, the validity of the dividend irrelevance theory of Modigliani and Miller for conventional banks but would not be accepted for Islamic banks in the MENA region. Research limitations/implications This study is restricted to a sample of one type of financial firms, banking firms listed in the MENA countries. In addition, the study has dealt with one type of dividend (the cash dividend). Practical implications Highlighting the difference between conventional and Islamic banks is crucial to understanding dividend policy behavior and to providing investors information to be integrated in their valuation setting to make informed corporate decisions. Originality/value To the best of the author’s knowledge, the present study is the first of its kind that it draws a comparative analysis by testing empirically the validity of the Irrelevant Theory to banks in the MENA region covering a long time period in the recent past.

Does service quality increase the level of banks performance

2019 ◽  
Vol 38 (6) ◽  
pp. 442-454 ◽  
Author(s):  
Syed Faraz Ali ◽  
Muhammad Naeem
Keyword(s):  
Service Quality ◽  
Multiple Regression ◽  
Positive Impact ◽  
Quality Parameters ◽  
Cluster Sampling ◽  
Islamic Banks ◽  
Content Type ◽  
Banking Systems ◽  
Conventional Banks ◽  
Conventional And Islamic Banks

Purpose The purpose of this paper is to unfold the relationship between service quality and level of performance of conventional and Islamic banks. Also, it intends to uncover what are the features of service quality which can raise the level of performance either in conventional banks or Islamic banks. There is rare literature available that focused on comparative study between above stated banking systems based on emerging parameters of SERVQUAL model. Design/methodology/approach To meet the objectives of this investigation, research data has been from 450 customers who have had accounts and dealings with conventional and Islamic banks in the previous five years. The customers are selected based on cluster sampling from regional offices of conventional and Islamic banks. Findings The collected data have been analyzed by using confirmatory factor analysis (CFA) technique followed by common method variance (CMV), multiple regression test and independent sample t-test used to examine the parameters of service quality in the context of banks performance. The purpose of CFA is to find the model validity, while multiple regression and t-test is performed in order to examine the influence of service quality parameters on banks performance. Originality/value The study used compliance as a one of the emerging and unique dimension of service quality. This dimension is rarely investigated in the context of measuring the level of bank performance of conventional and Islamic banking systems. Findings reveal responsiveness and assurance is the strongest predictor of conventional banking performance. Compliance and reliability has significant and positive impact on the level of performance of Islamic banks. Moreover, the study has practical implications for the top management and stakeholders of conventional and Islamic banks to increase the level of performance by using SERVQUAL model.

Bank risk-taking in the MENA region

2016 ◽  
Vol 43 (12) ◽  
pp. 1367-1385 ◽  
Author(s):  
Rim Ben Selma Mokni ◽  
Mohamed Tahar Rajhi ◽  
Houssem Rachdi
Keyword(s):  
Risk Taking ◽  
Random Effect ◽  
Generalized Method Of Moments ◽  
Least Square ◽  
Islamic Banks ◽  
Mena Region ◽  
Content Type ◽  
Conventional Banks ◽  
Macroeconomic Determinants ◽  
The Empirical Analysis

Purpose The purpose of this paper is to investigate determinants of risk-taking in Islamic banks and conventional banks located in the MENA region. Design/methodology/approach The empirical study covers a sample of 15 conventional and 15 Islamic banks for the period 2002-2009. The authors estimate models using both generalized least square random effect and generalized method of moments system approaches. Findings The results of the empirical analysis show that the determinants’ risk-taking significance varies between Islamic and conventional banks. Originality/value The main aim is to develop a comprehensive model that integrates macroeconomic determinants, industry-specific determinants, and bank-specific determinants. This paper performs a comparison of the risk-taking between two different banking systems in the MENA region.

Sign in / Sign up

Export Citation Format

Share Document