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Loan and financing diversification and bank stability in dual-banking systems

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  • Šeho, Mirzet
  • Shaiban, Mohammed Sharaf Mohsen
  • Ghafoor, Abdul

Abstract

Our investigation of 46 conventional and 22 Islamic banks from the Gulf Cooperation Council (GCC) countries during 2008–2021 reveals that sectoral diversification effects on stability are nonlinear and different for the two bank types. While Islamic banks’ stability is worsened only by moderate levels of diversification, conventional banks’ stability is enhanced by high levels and impaired by low levels of diversification. Furthermore, diversification acted as a stabilizer during the global financial crisis but exacerbated the adverse effects of the Covid-19 pandemic. Although regulators usually call for bank diversification, our results imply that it can be a double-edged sword.

Suggested Citation

  • Šeho, Mirzet & Shaiban, Mohammed Sharaf Mohsen & Ghafoor, Abdul, 2023. "Loan and financing diversification and bank stability in dual-banking systems," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322005724
    DOI: 10.1016/j.frl.2022.103395
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    More about this item

    Keywords

    Diversification; Stability; Loans; Financing; Banks; Dual-banking; GCC;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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