Is Islamic Banks Better Than Conventional Banks In The Time Of Uncertainty?

This research aims to examine how uncertainty affects the banks stability of Islamic and conventional banks in OIC countries. Furthermore, this study investigates spillover effects of bank stability among OIC countries. A sample set of 201 banks from 16 OIC countries between 2013-2020 in yearly-basis data and spatial data panel econometrics methodology are used to accomplish these purposes. For robustness checks, spatial weighting comparison will be used, enriched with the marginal effect measurement and expert opinion questionnaires. Inverse distance will be used as the weighting of the main estimation, while trade volume and GDP are used for robustness checks. This study finds that that Islamic bank has more resiliency than conventional banks in term of stability in time of uncertainty. Meanwhile, there is strong evidence of spatial relationship of bank stability between host and neighboring OIC countries. The increment of uncertainty is significantly followed by the rising conventional bank stability, while on the contrary, Islamic bank doesn’t shows any significant instability. The same goes on spillover effect, the reduction of bank stability in host country is followed by the reduction of neighboring bank stability. These results are robust due to the consistent outcome throughout two different weighting matrices, marginal effect measurement, and expert opinion.