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Is Islamic Banking More Procyclical? Cross-Country Evidence

Author

Listed:
  • Laurent Weill

    (University of Strasbourg
    Moscow State Institute of International Relations (MGIMO University))

  • Alexandra Zins

    (University of Strasbourg)

Abstract

This paper investigates the cyclicality of Islamic banking relative to conventional banking. It examines whether loan growth and profitability have a different sensitivity to economic growth for Islamic banks and for conventional banks. We used panel data from 525 banks covering 16 countries with dual banking systems spanning the period from 2008 to 2018. We found no difference in lending cyclicality: Islamic banks and conventional banks both have procyclical lending behavior. Profitability, on the other hand, is procyclical for Islamic banks but not for conventional banks. Our findings support the view that Islamic banking presence does not contribute to strengthened economic stability.

Suggested Citation

  • Laurent Weill & Alexandra Zins, 2021. "Is Islamic Banking More Procyclical? Cross-Country Evidence," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(2), pages 318-335, June.
    • Handle: RePEc:pal:compes:v:63:y:2021:i:2:d:10.1057_s41294-020-00143-y
    DOI: 10.1057/s41294-020-00143-y
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    More about this item

    Keywords

    Islamic banking; Loan growth; Financial stability; Bank profitability; Business cycles; Procyclicality;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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