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What makes Islamic banks different ? A multivariate approach

Author

Listed:
  • Mohammad Bitar

    (Concordia University [Montreal])

  • Philippe Madiès

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

  • Ollivier Taramasco

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

Abstract

Using data from 8615 banks (including 123 Islamic banks) in 124 developed and developing countries for the period between 2006 and 2012, we examine the financial characteristics that distinguish between conventional and Islamic banks. As banks' financial characteristics are multi-faceted concepts, our indicators are constructed using principal component analysis. We find that Islamic banks are more capitalized, more liquid and more profitable, but have more volatile earnings compared to US and European banks. However, similarities in terms of liquidity and earnings volatility are more noticeable when the sample is limited to banks operating in countries where both systems coexist. Finally, we find that higher capital makes the returns of Islamic banks more volatile, while higher liquidity decreases the profitability of conventional banks.

Suggested Citation

  • Mohammad Bitar & Philippe Madiès & Ollivier Taramasco, 2017. "What makes Islamic banks different ? A multivariate approach," Post-Print hal-01980549, HAL.
    • Handle: RePEc:hal:journl:hal-01980549
    DOI: 10.1016/j.ecosys.2016.06.003
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    Citations

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    Cited by:

    1. Tanin, Tauhidul Islam & Hasanov, Akram Shavkatovich & Shaiban, Mohammed Sharaf Mohsen & Brooks, Robert, 2022. "Risk transmission from the oil market to Islamic and conventional banks in oil-exporting and oil-importing countries," Energy Economics, Elsevier, vol. 115(C).
    2. Naif Alsagr & Stefan F. Van Hemmen Almazor, 2020. "Oil Rent, Geopolitical Risk and Banking Sector Performance," International Journal of Energy Economics and Policy, Econjournals, vol. 10(5), pages 305-314.
    3. Alshammari, Ahmad Alrazni & Alhabshi, Syed Musa & Saiti, Buerhan, 2019. "The impact of oil prices and the financial market on cost efficiency in the insurance and Takaful sectors: Evidence from a stochastic frontier analysis," Economic Systems, Elsevier, vol. 43(3).
    4. Ribed Vianneca W. Jubilee & Fakarudin Kamarudin & Ahmed Razman Abdul Latiff & Hafezali Iqbal Hussain & Khar Mang Tan, 2021. "Do Islamic versus conventional banks progress or regress in productivity level?," Future Business Journal, Springer, vol. 7(1), pages 1-22, December.
    5. Al-Shboul, Mohammad & Maghyereh, Aktham & Hassan, Abul & Molyneux, Phillip, 2020. "Political risk and bank stability in the Middle East and North Africa region," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    6. Wahida Ahmad & Nur Hazimah Amran, 2023. "Non-linear Panel Data Liquidity Model of Islamic and Conventional Banks," Information Management and Business Review, AMH International, vol. 15(4), pages 316-325.
    7. Bitar, Mohammad & Pukthuanthong, Kuntara & Walker, Thomas, 2020. "Efficiency in Islamic vs. conventional banking: The role of capital and liquidity," Global Finance Journal, Elsevier, vol. 46(C).
    8. Hassan, M. Kabir & Khan, Ashraf & Paltrinieri, Andrea, 2019. "Liquidity risk, credit risk and stability in Islamic and conventional banks," Research in International Business and Finance, Elsevier, vol. 48(C), pages 17-31.
    9. Asma Sghaier & Sami Ben Jabeur & Boutheina Bannour, 2018. "Using partial least square discriminant analysis to distinguish between Islamic and conventional banks in the MENA region," Review of Financial Economics, John Wiley & Sons, vol. 36(2), pages 133-148, April.
    10. Slaiman Alebrahim, 2021. "Assessment of Financial Performance and Efficiency of Islamic and Traditional Banks in the Post-Crisis Period," International Journal of Business and Management, Canadian Center of Science and Education, vol. 14(12), pages 149-149, July.
    11. Belkhir, Mohamed & Grira, Jocelyn & Hassan, M. Kabir & Soumaré, Issouf, 2019. "Islamic banks and political risk: International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 39-55.
    12. Salma Zaiane & Fatma Ben Moussa, 2021. "What Drives Banking Profitability During Financial Crisis and Political Turmoil? Evidence from the MENA Region," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 13(3), pages 380-407, September.
    13. Rasha Tawfiq Abadi & Florinda Silva, 2022. "Do Islamic fundamental weighted indices outperform their conventional counterparts? An empirical investigation during the crises in the MENA region," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(2), pages 241-266, June.
    14. Smaoui, Houcem & Ghouma, Hatem, 2020. "Sukuk market development and Islamic banks’ capital ratios," Research in International Business and Finance, Elsevier, vol. 51(C).
    15. Hussam Musa & Zdenka Musova & Viacheslav Natorin & George Lazaroiu & Martin Boda, 2021. "Comparison of factors influencing liquidity of European Islamic and conventional banks," Oeconomia Copernicana, Institute of Economic Research, vol. 12(2), pages 375-398, June.
    16. Amine Ben Amar, 2022. "On the role of Islamic banks in the monetary policy transmission in Saudi Arabia," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 55-94, March.
    17. Faten Ben Bouheni & Hassan Obeid & Elena Margarint, 2022. "Nonperforming loan of European Islamic banks over the economic cycle," Annals of Operations Research, Springer, vol. 313(2), pages 773-808, June.
    18. Albaity, Mohamed & Mallek, Ray Saadaoui & Noman, Abu Hanifa Md., 2019. "Competition and bank stability in the MENA region: The moderating effect of Islamic versus conventional banks," Emerging Markets Review, Elsevier, vol. 38(C), pages 310-325.
    19. Grira, Jocelyn & Labidi, Chiraz, 2021. "Banks, Funds, and risks in islamic finance: Literature & future research avenues," Finance Research Letters, Elsevier, vol. 41(C).
    20. Hunjra, Ahmed Imran & Islam, Faridul & Verhoeven, Peter & Hassan, M. Kabir, 2022. "The impact of a dual banking system on macroeconomic efficiency," Research in International Business and Finance, Elsevier, vol. 61(C).
    21. Nosheen & Abdul Rashid, 2021. "Financial soundness of single versus dual banking system: explaining the role of Islamic banks," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 20(1), pages 99-127, January.
    22. Houcem Smaou & Hatem Ghouma, 2019. "Sukuk Market Development and Islamic Banks’ Capital Ratios," Working Papers 1329, Economic Research Forum, revised 21 Aug 2019.
    23. Louhichi, Awatef & Boujelbene, Younes, 2020. "Credit risk pricing and the rationality of lending decision-making within dual banking systems: A parametric approach," Economic Systems, Elsevier, vol. 44(1).

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