Abstract
Using the data extracted from BankScope database of 92 banks in GCC (27 Islamic Banks and 65 Conventional Banks) for the period from 2006 to 2009, this study intends to investigate the impact of the financial crisis on the performance of both Islamic and conventional banks and test whether Islamic bank performance is better before and during the crisis.The study employs T-Test to observe any significant difference between Islamic and Conventional banks performance before and during the crisis.Three ratios were used to represent bank profitability measures which are return on assets (ROA), return on equity (ROE) and net interest margin (NIM) while two variables were used to measures each one of the bank-specific characteristics,: Equity and Tangible Equity as measures for Capital Structure, Loans and Liquid Assets as measures for Liquidity, and Deposits and Overheads for Liability. The results showed that the financial crisis had a negative impact on profitability of both Islamic and conventional banks but the Islamic banks were more profitable than conventional bank during the financial crisis but not statistically significant. The profitability determinants behaved differently for Islamic and conventional banks during the crisis. By applying the t-test it is found that the Islamic banks had better capital structure than the conventional banks during the financial crisis while the conventional banks had better liquidity and liability ratios than the Islamic banks. No strong statistical evidence found that Islamic banking has weathered the financial crisis than conventional counterparts in all performance measures.
Highlights
The Financial crisis of 21st century drawn attention towards Islamic Banking as the conventional banks were hit hard.In the early phases of the financial crisis while the conventional banks were suffering from the impact of the crisis, Islamic banks perceived to remain stable and enjoy profit
This study will focus on the impact of the financial crisis on the profitability of the Islamic Banks in comparison with the conventional banks using different profitability determinants that directly affect the profitability of a bank including capital structure, liquidity and liability and test the general perception that Islamic banks performed better in these aspects before and during the crisis
The variables are divided into four categories: Profitability Variables, Capital Structure, Liquidity and Liabilities. profitability variables of Islamic and conventional banking and they are Return on Average Assets (ROA), Return on Average Equity (ROE) and Net Interest Margin (NIM), Capital Structure measures consist of Equity and Tangible Equity
Summary
The Financial crisis of 21st century drawn attention towards Islamic Banking as the conventional banks were hit hard.In the early phases of the financial crisis while the conventional banks were suffering from the impact of the crisis, Islamic banks perceived to remain stable and enjoy profit. This study will focus on the impact of the financial crisis on the profitability of the Islamic Banks in comparison with the conventional banks using different profitability determinants that directly affect the profitability of a bank including capital structure, liquidity and liability and test the general perception that Islamic banks performed better in these aspects before and during the crisis. This study focuses on the impact of the financial crisis on the performance of the Islamic banks vs Conventional banks using two periods i)years 2006 and 2007 before financial crisis and ii)years 2008 and 2009 during financial crisis in terms of capital structure, liquidity and liability
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