FINANCIAL STABILITY OF ISLAMIC AND CONVENTIONAL BANKS IN BANGLADESH: REVISITING STABILITY MEASURES AND ANALYZING STABILITY BEHAVIOR

This study intends to assess the relative financial stability of Islamic banks in Bangladesh using three different Z-Scores as financial stability measures, based on a sample of 29 listed commercial banks (23 conventional and 6 Islamic) in Bangladesh over the period 2005-2016. Apart from the existing measure of financial stability, Z-Score, the paper contributes to the literature by developing an alternative Z-Score based on bank’s loan portfolio infection ratio. We first use pair-wise comparison and find that Islamic banks are financially more stable in two stability measures i.e. Z-Score (based on Capital Adequacy Ratio) and Z-Score (based on Infection Ratio). We then perform static (random effects) and dynamic (GMM) panel data analysis. By controlling for bank-specific, industry-specific and macroeconomic variables in the regressions, we find that Islamic banks are financially more stable in 2 panel regressions of Z-Score (based on Infection Ratio). We also find that the presence of Islamic banks increases the stability of all banks in the system including their conventional peers.

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Basel Compliance and Financial Stability: Evidence from Islamic Banks

Journal of Financial Services Research ◽

10.1007/s10693-020-00337-6 ◽

2020 ◽

Author(s):

Mohammad Bitar ◽

Sami Ben Naceur ◽

Rym Ayadi ◽

Thomas Walker

Keyword(s):

Financial Services ◽

Financial Stability ◽

Financial System ◽

Islamic Banks ◽

Z Score ◽

Capital Ratios ◽

Conventional Banks ◽

The Stability ◽

Global Financial System ◽

Positive Effect

Abstract We find that compliance with the Basel Core Principles (BCPs) has a strong positive effect on the stability of conventional banks, and a positive but less pronounced effect on the stability of Islamic banks. We also find that the main impact of compliance is an increase in capital ratios, whereas other components of the Z-score are negatively affected. This reflects the desire of banks to be more closely integrated into the global financial system by holding higher capital ratios. The findings also justify the 2015 decision of the Islamic Financial Services Board to publish similar principles for Islamic banks.

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Does Islamic banking really strengthen financial stability? Empirical evidence from Pakistan

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-11-2015-0137 ◽

2017 ◽

Vol 10 (2) ◽

pp. 130-148 ◽

Cited By ~ 14

Author(s):

Abdul Rashid ◽

Saba Yousaf ◽

Muhammad Khaleequzzaman

Keyword(s):

Financial Stability ◽

Banking System ◽

Islamic Banks ◽

Z Score ◽

Content Type ◽

Macroeconomic Indicators ◽

Conventional Banks ◽

The Stability ◽

Underlying Variable ◽

Empirical Framework

Purpose This paper aims to empirically assess the contribution of Islamic banks toward the financial stability of Pakistan. For this, the authors investigate the relative financial strength of Islamic banks and their contribution toward the financial stability. They also examine the relationship between the competitive conduct of banks and banking system stability. Design/methodology/approach The authors use quarterly data of ten conventional banks, four full-fledged Islamic banks and six standalone Islamic branches of conventional banks of Pakistan for the period 2006-2012. The z-score has been computed and used as the measure of stability of banks and the random effects estimator applied to quantify the impact of bank-specific variables and macroeconomic indicators on the financial stability. The empirical framework used in the paper enables the authors us to examine the differential effect of each underlying variable on the financial stability across Islamic and conventional banks. To check the robustness of the results, the authors have estimated several models with different specifications. Findings The regression results indicate that income diversity, profitability ratio, loan to asset ratio, asset size and the market concentration ratio of banks have significant effects on the stability of banks. Comparing Islamic and conventional banks, notable differential effects of the empirical determinants of financial stability for Islamic and conventional banks have been observed. The results suggest that Islamic banks have performed better as compared to conventional banks and contributed more effectively in the stability of financial sector. Overall, the results depict that the contribution of Islamic banks toward the financial stability has been reasonable and prospective. Practical implications The empirical results of the paper are very useful not only for banks’ managements but also for the investors, bank customers and policymakers. Specifically, the findings help in enhancing our understanding as to how the bank-specific variables and macroeconomic indicators are related to the financial stability of the banking system. The results also help understand the role of both Islamic and conventional banks in the financial stability. Further, the results suggest that the financial soundness can be enhanced by creating healthy competition in the banking industry. The results about macroeconomic indicators imply that protective measures are required to intensify (mitigate) the positive (negative) effect of gross domestic product (inflation) on banks’ financial stability. Originality/value This paper provides an overall comparative analysis of financial stability of both Islamic and conventional banks of Pakistan. First, the paper computes the z-score for each bank included in the sample, and then, it performs the regression analysis to study how bank-specific variables and macroeconomic factors are related to the financial stability of banks. Unlike the previous studies, our empirical framework enables the authors to examine the differential effect of each underlying variable on the financial stability across Islamic and conventional banks.

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Panel modeling of z-score: evidence from Islamic and conventional Saudi banks

International Journal of Islamic and Middle Eastern Finance and Management ◽

10.1108/imefm-04-2018-0122 ◽

2019 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Hassan Belkacem Ghassan ◽

Abdelkrim Ahmed Guendouz

Keyword(s):

Financial Stability ◽

Banking Sector ◽

Stability Index ◽

Z Score ◽

Strong Concentration ◽

Content Type ◽

Quarterly Data ◽

Annual Frequency ◽

Conventional Banks ◽

The Stability

Purpose This paper aims to measure the stability extent of the banking sector in Saudi Arabia, including Islamic and conventional banks (CBs), using quarterly data. Design/methodology/approach The paper uses seemingly unrelated regressions to estimate the determinants of the z-score. Findings The panel data model shows that Islamic banks (IBs) reduce the financial stability index relatively; meanwhile, they contribute efficiently to enhance the financial stability through the diversification of their assets. The Saudi banking sector exhibits strong concentration affecting the financial stability negatively. Research limitations/implications The paper’s topic can be extended to cover the recent period. Practical implications The limited presence of IBs in the Saudi banking sector jeopardizes any effort to improve the financial stability. Social implications By attracting more clients, IBs would contribute more to the financial stability in the Saudi economy. Also, the monetary authority has to expand the share of IBs in the financial system at least 50-50 compared to CBs. Originality/value The z-score is mostly analyzed with yearly data; in this paper we use quarterly data to describe at infra-annual frequency the variability of the z-score index. Also, we consider in detail the statistical properties of the banks’ data.

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KOMPARASI KINERJA DAN KETAHANAN KREDIT ANTARA PERBANKAN KONVENSIONAL DAN PERBANKAN SYARIAH

Media Ekonomi ◽

10.25105/me.v23i1.3296 ◽

2015 ◽

Vol 23 (1) ◽

pp. 55

Author(s):

Frisky Elisa ◽

Ida Busneti

Keyword(s):

Exchange Rate ◽

Capital Adequacy ◽

Islamic Banking ◽

Islamic Banks ◽

Factors Affecting ◽

Net Interest Margin ◽

Capital Adequacy Ratio ◽

Conventional Banks ◽

Interest Margin

This research aims to know the factors affecting the performance and credit resilience at cinvensional and Islamic banks. In addition to comparing the performance and credit resilience of the convensional and Islamic banks. Using Pooled methods. This research uses the return on asset (ROA) for performance bankings are measure non-performing loan (NPL) / non-performing finance (NPF) to credit resilience. Factor that are used to looking at banking performance, among others, the lain net interest margin (NIM), non-performing loan (NPL) atau non-performing finance (NPF), Loan to deposit ratio (LDR), dan BOPO. While credit resilience, fators that are used among others inflation, exchange rate, Loan to deposit ratio (LDR) dan capital adequacy ratio (CAR). This research uses a conventional five banks and five Islamic banks from 2010 quarter 01 – 2013 quarter 02. The data used in this study were obtained from quarterly report of the bank for 2010-2013. Badan Pusat Statistik and Bank Indonesia. Result of analysis of this study that the performance of conventional banks is influential NPL and BOPO while in credit resilience is inflation, in a ratio impact on Islamic banking performance as BOPO and influencing credit resilience is CAR

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PERFORMANCE COMPARISON BETWEEN ISLAMIC BANKS AND CONVENTIONAL BANKS IN INDONESIA

EKUITAS (Jurnal Ekonomi dan Keuangan) ◽

10.24034/j25485024.y2014.v18.i1.102 ◽

2018 ◽

Vol 18 (1) ◽

Author(s):

Dudi Rudianto ◽

Tetty Sari Rahmiati

Keyword(s):

Performance Comparison ◽

Capital Adequacy ◽

Islamic Banks ◽

Capital Adequacy Ratio ◽

Conventional Banks

Penelitian ini bertujuan untuk mengetahui pengaruh makroekonomi yang diukur oleh inflasi, net ekspor dan suku bunga Bank Indonesia (BI rate) terhadap kinerja perbankan serta melakukan analisis perbandingan kinerja perbankan yang diukur oleh capital adequacy ratio (CAR), loan to deposit ratio (LDR) dan non performing loan (NPL) antara bank umum syariah (BUS) dengan bank umum konvensional (BUK). Penelitian ini dilakukan dengan menggunakan sampel pada tiga BUS dan tiga BUK yang memiliki nilai asset yang setara untuk diperbandingan dengan menggunakan data bulanan dari tahun 2005 sampai dengan tahun 2012. Dari penelitian yang dilakukan diperoleh hasil bahwa, secara simultan faktor-faktor makro ekonomi yang terdiri dari inflasi, net ekspor dan BI rate memiliki pengaruh yang signifikan terhadap kinerja perbankan yang diukur oleh CAR baik pada BUS maupun pada BUK, dengan besaran pengaruh yang lebih besar pada BUS dibandingkan pada BUK. Namun secara parsial hanya BI rate yang memiliki pengaruh yang signifikan terhadap CAR dari kedua jenis perbankan tersebut. Kinerja BUS yang diukur oleh CAR, LDR, dan NPL memiliki perbedaan yang signifikan dengan BUK dan secara menyeluruh kinerja perbankan BUS lebih baik dibandingan BUK.

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PERBANDINGAN TINGKAT PROFITABILITAS DAN LIKUIDITAS DARI ASSET-LIABILITIES MANAGEMENT PADA BANK SYARIAH DAN BANK KONVENSIONAL

JESI (Jurnal Ekonomi Syariah Indonesia) ◽

10.21927/jesi.2015.5(1).1-11 ◽

2016 ◽

Vol 5 (1) ◽

pp. 1

Author(s):

Rindang Nuri Isnaini Nugrohowati

Keyword(s):

Banking Sector ◽

Banking System ◽

Capital Adequacy ◽

Islamic Banks ◽

Return On Assets ◽

Return On Equity ◽

Liability Management ◽

Capital Adequacy Ratio ◽

Conventional Banks ◽

Important Position

Abstract The banking sector has a very important position for the economic systemof a country. The banking system, which is part of the financial system willaffect the course of the economic system as a whole. If the banking system isweak then the system will also be weak economy. Banking is an intermediaryinstitution is the institution that channel funds from surplus funds (surplusunits) to the sectors that lack of funds (deﬁ cit units). With the banking economic actors in need of funds can be met so that the economy can continue to run. In this study will speciﬁ cally analyze the comparison of the level of proﬁ tability of the asset-liability management in Islamic banks and conventional banks are seen from the return on assets and return on equity rises. It also will be studied comparative level of liquidity in Islamic banks and conventional banks are seen from the loan to deposit ratio and Capital Adequacy Ratio. By Hyphothesis is as follows : Ha1: there are differences in the level of profitability of the asset-liabilitymanagement in Islamic banks and conventional banks are seen from the return on assets and return on equity Ha2: there are differences in the level of liquidity in Islamic banks andconventional banks are seen from the loan to deposit ratio and Capital Adequacy Ratio Data analysis has been done obtained the following conclusions, based onmeans testing compare with test Independent-Samples t-test showed that the level of tability seen from ROA and ROE between Islamic Bank and Bank Konvensiona show any signiﬁ cant difference. This is demonstrated by tests of signiﬁ cance 0.02 0.05 for FDR, while for the signiﬁ cance test CAR of 0.38> 0.05. Keyword: Proﬁ tabilitas, Likuiditas, Asset Liabilities Management, Bank Syariah

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Impact of COVID-19 on the Performance and Stability of Conventional and Islamic Banks in the GCC Region, Malaysia, and Pakistan

Islamic Banking and Finance Review ◽

10.32350/ibfr/2021/08/1076 ◽

2021 ◽

Vol 8 (1) ◽

pp. 25-37

Author(s):

Qazi Yasir Arafat ◽

Abdul Rashid ◽

Qazi Waseem Jan

Keyword(s):

Negative Impact ◽

Islamic Banks ◽

Return On Assets ◽

Return On Equity ◽

Quarterly Data ◽

Z Scores ◽

Conventional Banks ◽

The Stability ◽

The Impact ◽

Conventional And Islamic Banks

This study examines the impact of COVID-19 on the performance and stability of conventional and Islamic banks. The sample included all the 21 listed Islamic banks (IBs) and 44 listed conventional banks (CBs) from the GCC region, Malaysia, and Pakistan. Quarterly data of these banks covering the period January 2019 to June 2020 were obtained from their quarterly reports. Performance was measured by return on assets (ROA) and return on equity (ROE), while stability was measured by the Z-scores of these banks. Based on the previous literature, a better performance of IBs was expected because these banks are based on the participatory mode of financing instead of debt-based financing. However, the results of the current study showed a significant and negative impact of COVID-19 on the financial performance of both types of banks, suggesting that either type of banking was significantly affected during the pandemic. However, we did not find any significant evidence of the impact of COVID-19 on the stability of these banks.

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Financial System Stability in Indonesia during The Global Financial Crisis 2007/2008: Conventional vis-à-vis Islamic

Global Review of Islamic Economics and Business ◽

10.14421/grieb.2014.022-05 ◽

2015 ◽

Vol 2 (2) ◽

pp. 136

Author(s):

Muh. Rudi Nugroho ◽

Ibnu Qizam

Keyword(s):

Financial Crisis ◽

Financial Stability ◽

Global Financial Crisis ◽

Internal Variable ◽

Islamic Banks ◽

Z Score ◽

Internal Factors ◽

Macroeconomic Factors ◽

Conventional Banks ◽

The Global Financial Crisis

This research aims to analyze the financial stability especially in dual banking system in Indonesia and discusses the role of Islamic banks in the financial stability of national banks. In addition, this study also focuses on the analysis of the determinants of financial stability namely on the national banking Industry. This research uses panel data in which combined data between time series and cross section with an observation periods are 2005:1 - 2009:1 by using an internal variable of banks and macroeconomic data. Z-score analysis will be used as main tool analysis regressed with internal variable. Empirical results obtained from this research shows that during the period of 2005:1 - 2009:1 banking financial stability, for both conventional and Islamic and categorized based on an asset scale, the movement of the Z-score value is different. From the Z-score values analysis shows that Islamic banks are the most stable bank with a trend increased sharply when compared with other banks, namely conventional couterparts. If viewed from each category, small conventional banks more stable than small Islamic banks, and there are declining trend in 2005:1 to 2009:1. Whereas for large and middle conventional banks the trend of the Z-score movement are in the same patterns. This study also founds that the determinant of the banking stability can be seen from two sides namely bank's internal factors and macroeconomic factors. Internal factors consist of: Income Diversity (ID), Credit or Financing (Loan), Total Assets (TA), Operational Cost (Cost), Cost Income (CI), Loan Asset (LA), Current Liability (CL), Cash to Current Liabilities (CCL), Capital Bank (MDL). While macroeconomic factors consist of: inflation, BI Rate, Exchange Rate, Composite Index (JCI), the Gross Domestic Product (GDP). This research also examined the extent to which the role of Islamic banks and the global financial crisis to the financial stability of national banking. This analysis shows that the global financial crisis and Islamic banks affect significantly to the financial stability of banking industries in Indonesia.

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Bank Competition–Stability Relations in Pakistan: A Comparison between Islamic and Conventional Banks

International Journal of Business and Society ◽

10.33736/ijbs.3733.2021 ◽

2021 ◽

Vol 22 (2) ◽

pp. 532-545

Author(s):

M. Kabir Hassan ◽

Muhammad Shahzad Ijaz ◽

Mushtaq Hussain Khan

Keyword(s):

Market Power ◽

Financial Stability ◽

Banking Sector ◽

Generalized Least Squares ◽

Islamic Banks ◽

Bank Competition ◽

Least Squares Regression ◽

Using Data ◽

Conventional Banks ◽

The Stability

This study comparatively analyses the financial stability of Islamic and conventional banks in Pakistan. Using data of 29 conventional and 9 Islamic banks over 18 years, the study first estimates bank competition and stability using Lerner index and Z-Score, respectively. Generalized least squares regression is used and the coefficients are estimated by using random-effects estimator. Results of the mean comparison show that Islamic banks carry more market power (less competition) and are more stable compared to their conventional counterparts. Results of a panel regression show that competition positively affects the stability of the banking sector and this effect is higher for Islamic banks due to their market power. Results also show that bank stability in Pakistan was reduced during global crisis period; however, presence of Islamic banks contributes to the stability even during crisis. Finally, this study supports the competition-stability hypothesis for Islamic banking in Pakistan. Recommendations are given at the end.

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FAKTOR PENENTU LABA PERBANKAN SYARIAH DI INDONESIA

Media Ekonomi ◽

10.25105/me.v24i1.3790 ◽

2016 ◽

Vol 24 (1) ◽

pp. 75

Author(s):

Mohamad Reza Fauzan ◽

Syafri ,

Keyword(s):

Panel Data Analysis ◽

Secondary Data ◽

Capital Adequacy ◽

Islamic Banks ◽

Operating Expense ◽

Banking Services ◽

Operating Income ◽

Capital Adequacy Ratio ◽

Negative Effect ◽

The Government

Banking is an institution that became one of supporting economic activity. Banks also be intermediary institutions that are considered important in financing both for individuals and organizations as well as being an alternative as a place to invest. So that's why many people assess the performance of banks to make a benchmark in the use of banking services. Besides the performance of the banking concern for management to assess whether the bank has been able to carry out normal banking operations and meet all its obligations in accordance with the regulations of both the government and the central bank. This study aimed to obtain results which are then used as an overview of the health of banks. This research was conducted in six Islamic banks in Indonesia. Data used is secondary data in the period 2010-2014. The analytical methods used are panel data analysis. The result showed that the Operating Expense to Operating Income affect a significant negative effect on bank profits while the Capital Adequacy Ratio, Net Performing Financing and Financing to Deposit Ratio significantly the negative and not on the bank's profit.

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