Islamic Banks, Conventional banks and Subprime Crisis: Empirical Evidence by Using DEA Approach

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.

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Islamic bank rent

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-11-2013-0119 ◽

2014 ◽

Vol 7 (2) ◽

pp. 170-181 ◽

Cited By ~ 7

Author(s):

Yasushi Suzuki ◽

S.M. Sohrab Uddin

Keyword(s):

Empirical Evidence ◽

Banking Sector ◽

Islamic Banking ◽

Islamic Banks ◽

Content Type ◽

Islamic Bank ◽

Franchise Value ◽

Conventional Banks ◽

First Time ◽

Rent Theory

Purpose – This paper aims to draw on the bank rent approach to evaluate the existing pattern of financing of Islamic banks and to propose a fairly new conceptualization of Islamic bank rent. Design/methodology/approach – The bank rent theory is adopted to generate the theoretical underpinnings of the issue. After that, empirical evidence from the banking sector of Bangladesh is used to support the arguments. Findings – Repeated transactions under murabaha are observed in the Islamic banking sector of Bangladesh. The asset-based financing gives the Bangladeshi Islamic banks relatively higher Islamic bank rent opportunity for protecting their “franchise value” as Shari’ah-compliant lenders, while responding to the periodic volatility in transaction costs of profit-and-loss sharing. Research limitations/implications – The bank rent approach suggests that the murabaha syndrome can be ironically justifiable. On the other hand, the current profit-and-loss sharing risk provides an idea of the difficulty in assuming the participatory financing with higher credit risk in practice. Islamic scholars and the regulatory authority need to design an appropriate financial architecture which can create different levels of rent opportunities for Islamic banks to avail the benefit from the variety of Islamic financing as declared by Islamic Shari’ah. Originality/value – This paper introduces a fairly new concept of “Islamic bank rent” to make sense of the murabaha syndrome. This approach also contributes to clarifying the unique risk and cost to be compensated with the spreads that Islamic banks are expected to earn. To draw empirical evidence, as far as it could be ascertained, the data of both Islamic banks and conventional banks with Islamic banking windows/branches are used for the first time.

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Contagion between Islamic and Conventional Banking: A GJR DCC-GARCH and VAR Analysis

International Business Research ◽

10.5539/ibr.v9n10p115 ◽

2016 ◽

Vol 9 (10) ◽

pp. 115

Author(s):

Mohamed Amin Chakroun ◽

Mohamed Imen Gallali

Keyword(s):

Var Model ◽

Subprime Crisis ◽

Islamic Banks ◽

Conditional Correlation ◽

Financial Systems ◽

Var Analysis ◽

Vector Auto Regression ◽

Conventional Banks ◽

The Impact ◽

Auto Regression

<p>This study aims testing the presence of contagion through Islamic and conventional banking systems during the subprime crisis. Specifically, we examine how far a shock striking conventional or Islamic banks is exported from one group to another or remain limited. Therefore, we adopt a GJR DCC-GARCH model to study the dynamic conditional correlation and the vector auto-regression VAR model in order to identify causality direction and the impact of a shock on the returns of each banking index. Hence, our results indicate that Islamic banks are not isolated from conventional banks while there is a contagion phenomenon between these two financial systems. Furthermore, we determined that during the crisis, Islamic banks could not absorb this effects and ensure stability because these banks were also affected by the crisis.</p>

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Impact of Audit Committee Quality on the Financial Performance of Conventional and Islamic Banks

Journal of Risk and Financial Management ◽

10.3390/jrfm14040176 ◽

2021 ◽

Vol 14 (4) ◽

pp. 176

Author(s):

Achraf Haddad ◽

Anis El Ammari ◽

Abdelfattah Bouri

Keyword(s):

Financial Performance ◽

Audit Committee ◽

Evaluation Method ◽

Positive Impact ◽

Generalized Least Squares ◽

Audit Committees ◽

Subprime Crisis ◽

Islamic Banks ◽

Conventional Banks ◽

Conventional And Islamic Banks

A lot of previous research studied the relationship between audit committee quality and the financial performance of conventional banks before and during the subprime crisis, whereas some other investigations analyzed the same association in the framework of Islamic banks. However, no study has compared these two correlations either before, during, or after the subprime crisis. Several reasons explain the differences, such as the audit committee quality of each bank type, the evaluation method of the financial performance, the research peculiarities, the methodology, the data, and the interpretation. This research aims to compare the impacts of the audit committees’ quality on the financial performance of Islamic and conventional banks between 2010 and 2019. The financial performance measures and audit committees’ determinants of the conventional and Islamic banks concerned 112 banks of each type. The collected data covered four continents: America, Asia, Africa, and Europe. Impacts were compared by using the Generalized Least Squares analysis. The results showed that the audit committee reduced the profitability of two bank types. Moreover, it harmed the conventional banks’ efficiency but reported an unclear effect within Islamic banks. Even so, we noticed that the audit committee had a positive impact on the conventional banks’ liquidity, while the same effect was apparently ambiguous for the Islamic banks’ liquidity. For solvency, the audit committee positively influenced conventional banks while it affected that of Islamic banks.

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Islamic banks and conventional banks within the recent global financial crisis: empirical evidence from the GCC region

International Journal of Financial Services Management ◽

10.1504/ijfsm.2014.065573 ◽

2014 ◽

Vol 7 (3/4) ◽

pp. 196 ◽

Cited By ~ 2

Author(s):

Mohamed Chakib Kolsi ◽

Fatma Zehri

Keyword(s):

Financial Crisis ◽

Empirical Evidence ◽

Global Financial Crisis ◽

Islamic Banks ◽

Conventional Banks

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Capital Regulation and Risk-taking Behavior: Empirical Evidence for Islamic Banks

International Review of Management and Marketing ◽

10.32479/irmm.12612 ◽

2022 ◽

Vol 12 (1) ◽

pp. 43-50

Author(s):

Yomna Daoud ◽

Aida Kammoun

Keyword(s):

Empirical Evidence ◽

Risk Taking ◽

Banking Sector ◽

Theoretical Background ◽

Capital Adequacy ◽

Bank Risk ◽

Capital Regulation ◽

Islamic Banks ◽

Conventional Banks ◽

The Relationship

This paper investigates whether regulatory pressures have an impact on the relationship between change in capital and bank risk-taking. On the basis of a well developed theoretical background, capital regulation constitutes the core of prudential regulation within the banking sector. Several researches have investigated this relationship between capital and risk in conventional banks, and this subject has gained in interest since the last financial crisis. This study is one of the few studies that have attempted to provide empirical evidence on this issue for Islamic banks. We use data of Islamic banking sectors over the period 2010–2014. The results reveal that Islamic banks tend to behave differently at each level of capital adequacy. In addition, we provide some evidence that change in capital is positively related to the change in risk for highly capitalized Islamic banks.

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The effect of audit committee quality on the conventional and Islamic banks' financial performance between subprime and Corona crises

Asian Journal of Accounting Research ◽

10.1108/ajar-11-2020-0121 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Achraf Haddad ◽

Anis El Ammari ◽

Abdelfattah Bouri

Keyword(s):

Financial Performance ◽

Audit Committee ◽

Evaluation Method ◽

Positive Impact ◽

Annual Reports ◽

Subprime Crisis ◽

Islamic Banks ◽

Content Type ◽

Conventional Banks ◽

Conventional And Islamic Banks

PurposeThis study aims to test empirically the differences between Islamic and conventional banks in terms of impacts of the audit committees' quality on financial performance between Subprime and Corona crises.Design/methodology/approachThe variables are articulated in four hypotheses tested by the GLS analysis. The data were collected via DATASTREAM and from banks' annual reports. The collected data covered four continents: America, Asia, Africa and Europe. The financial performance measures and audit committee's determinants of the conventional and Islamic banks concerned 112 banks of each type after the Subprime crisis and before the Corona crisis (2010–2019).FindingsResults showed that the audit committee reduced the profitability of two bank types. Moreover, it harmed the conventional banks' efficiency, but reported an unclear effect within Islamic banks. Even so, the authors noticed that the audit committee had a positive impact for the conventional banks' liquidity, while the same effect was apparently ambiguous on the Islamic banks' liquidity. For solvency, the audit committee positively influenced conventional banks, while it affected that of Islamic banks.Research limitations/implicationsEmpirically, the authors’ results can serve as a reference for decision-makers allowing to clarify the data on the financial competitiveness of two bank types to facilitate the planning of strategic performance programs based on the audit committee quality. Theoretically, researchers found that the differences between the results are due to the audit committee quality of each bank type or to the financial performance evaluation method. However, there are further factors that are related to the research peculiarities, the methodology, the data and the interpretation.Originality/valueBased on the comparative literature review between conventional and Islamic banks, this study is the first conditional and comparative research between the audit committee quality and the financial performance of conventional and Islamic banks in a specific period (after Subprime and before Corona crises).

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Financial Stability of Islamic and Conventional Banks of the MENA Region: Post and Pre-Crisis of CAMELS Framework

International Journal of Islamic Banking and Finance Research ◽

10.46281/ijibfr.v4i2.784 ◽

2020 ◽

Vol 4 (2) ◽

pp. 38-48

Author(s):

Joudar Fadoua ◽

Dinar Brahim

Keyword(s):

Empirical Evidence ◽

Financial Stability ◽

Central Banks ◽

Financial Ratios ◽

Subprime Crisis ◽

Mena Region ◽

Bank Stability ◽

Stability Measure ◽

Conventional Banks

The present study provides new empirical evidence of bank stability measure for 12 Islamic and conventional banks in the MENA region, for a period from 2005 to 2014. The most known method of measuring bank stability is using CAMELS variables; it was adopted by multiple central banks. After calculating financial ratios for the CAMELS framework, we calculate the average for each variable for the two types of banks, for three periods: Pre-crisis 2005-2006, Subprime Crisis 2007-2008, and Post-Crisis 2009-2014, to examine the effect of the crisis on the soundness of Islamic and conventional banks.

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