Bankruptcy Forecasting and Economic Sustainability Profile of the Market Leading Islamic Banking Countries

Abstract

This study used bankruptcy forecasting as a proxy for measuring economic sustainability profile of the Islamic banks in the market leading Islamic banking countries. The countries are Malaysia, Saudi Arabia, Iran, UAE and Kuwait. A sample of 29 Islamic banks with a post-crisis period data from 2009-2013 was collected for empirical testing. Results indicated that Saudi Arabian Islamic banks recorded the most minimal bankruptcy rate of 29 percent, followed by UAE with 31 percent, Kuwait with 48 percent, Malaysia with 55 percent and Iran with 68 percent respectively. The results further indicated that profitability, liquidity, insolvency, and productivity ratios have a significant positive impact on bankruptcy profile of the selected Islamic banks. This study lends credence to multiple stakeholders for taking appropriate measures regarding the deteriorating economic sustainability of the Islamic banks in the market leading Islamic banking countries. It also urges to develop a separate Shariah-based sustainability measurement framework for the Islamic banks.