CAMELS, risk-sharing financing, institutional quality and stability of Islamic banks: evidence from 6 OIC countries

Danlami, Muhammad Rabiu; Abduh, Muhamad; Razak, Lutfi Abdul

doi:10.1108/jiabr-08-2021-0227

Cited by 23 publications

(17 citation statements)

References 55 publications

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“…The higher value of Z-score designates better banking stability (Chakroun and Gallali, 2015). Some scholars and practitioners used Z-score to measure banking stability (Alharthi, 2017; Beck et al , 2013; Bustaman et al , 2017; Hassan et al , 2019; Kabir et al , 2015; Miah and Uddin, 2017; Danlami et al , 2022). The PD is a market-based measurement designed to capture market instability in the banking sector.…”

Section: Data and Methods Of Analysismentioning

confidence: 99%

The asymmetrical linkage between oil price and banking stability in the MENA region

Mohammad

Aliyu

2022

IMEFM

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Purpose This paper aims to empirically investigate the asymmetrical relationship between changes in oil price and the banking stability of the conventional and Islamic banks in the Middle East and North African (MENA) countries. Design/methodology/approach This paper measures banking stability with Z-score and probability of default using the Generalized Method of Moment. This paper selects a sample of conventional and Islamic banks operating within the MENA oil-producing states between 2008 and 2016. Findings The result of this paper reveals that the banking stability of the two types of banks responds to positive and negative shocks in oil prices. Thus, the stability of conventional banks is slightly better than that of Islamic banks in the region. Consequently, this paper also reveals that bank capitalization improves with the banking stability of the two banking systems in the region. Practical implications The findings of this paper will help the banks in the MENA oil-producing countries with strategies for improving banking stability during the oil price fluctuations and provide the policymakers with possible time for bank capital reform. Originality/value This paper explores the impact of the international oil price shocks on Islamic and conventional banks in one of the essential global oil-producing regions. As such, this paper extends the banking stability literature by accounting for the role of oil shock prices on banking distance and the probability of default. To the best of the authors’ knowledge, this is the first investigation of different transmission channels of oil price fluctuations in the region while considering the dual banking system in the hub of Islamic banks.

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Section: Data and Methods Of Analysismentioning

confidence: 99%

The asymmetrical linkage between oil price and banking stability in the MENA region

Mohammad

Aliyu

2022

IMEFM

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“…Oleh karena itu, ada kebutuhan untuk mengembangkan ukuran kinerja lain yang akan melengkapi tujuan keuangan IB. ;Umumnya dalam pengukuran kinerja bank syariah cenderung menggunakan pengukuran yang sama digunakan dengan bank konvensional (Surya & Asiyah, 2020) Management, Earning, Liquidity, Sensitivity of market risk) (Danlami et al, 2022). Namun, hal ini menjadi tidak tepat karena kinerja operasional bank syariah sangat berbeda dengan bank konvensional.…”

Section: Pendahuluanunclassified

Performance Of Islamic Rural Banks Pre and During Pandemic By Maqashid Sharia Index

2022

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Kajian ini berusaha mengungkap kinerja dari Bank Perkreditan Rakyat Syariah (BPRS) di Sumatera Utara pada masa pra dan pasca pandemi Covid-19. Penelitian ini menggunakan metode penelitian deskriptif kuantitatif dengan sumber data sekunder yaitu laporan keuangan tahunan BPRS Sumatera Utara yang dipublikasikan di situs Otoritas Jasa Keuangan (OJK) tahun 2019-2021. Data dipilih secara purposive sampling dan diperoleh 7 BPRS sesuai dengan kriteria penelitian. Penelitian ini menggunakan Indeks Maqashid Syariah sebagai metode pengukuran kinerja, berdasarkan definisi model maqashid syariah Abu Zahrah. Temuan dalam penelitian ini adalah, selama tahun 2019-2021, rata-rata tingkat kinerja BPRS Gebu Prima Kota Medan tertinggi sebesar 37,5%, dan BPRS al-Washliyah terendah sebesar 22,55%. Hasil penelitian menunjukkan beberapa elemen yang terkena dampak negatif dari pandemi covid-19, seperti tingkat profitabilitas yang sangat rendah. Penelitian ini memberikan kontribusi dalam memberikan informasi kepada stakeholders BPRS di Sumatera Utara untuk terus meningkatkan kinerja dalam dimensi Maqashid Syariah.

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“…The second strand is the growing literature that explores the determinants of IBs' stability (Bitar et al. , 2021; Banna and Alam, 2021; Danlami et al. , 2022).…”

Section: Introductionmentioning

confidence: 99%

Social finance, institutional quality and stability of Islamic banks: evidence from four countries

Danlami

Abduh

Razak

2023

IJSE

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PurposeIslamic banks, despite being Shariah-compliant, have long been criticized for mimicking conventional banks in terms of their products and processes (Khan, 2010; Kuran, 1996). However, several Islamic banks do engage in philanthropy (zakat and charity) and risk-sharing financing (mudarabah and musharakah) instruments that better meet their raison d'etre, the fulfillment of Maqasid al-Shariah (Jatmiko et al., 2023). These contracts, however, are more susceptible to moral hazard and adverse selection problems than traditional debt-based finance (Azmat et al., 2015) and may impair Islamic bank stability. This paper explores the relationship between social finance and the stability of Islamic banks, and whether institutional quality moderates this relationship.Design/methodology/approachUsing hand-collected annual data on social finance from 12 Islamic banks in four countries: Bangladesh, Bahrain, Indonesia and Malaysia, between 2006 and 2019, the authors employ the feasible generalized least squares and the panel-corrected standard errors methods for the analysis. The Stata version 16 software was used to analyze the data for the study.FindingsThe results indicate that mudarabah and musharakah financing raises the stability of Islamic banks. The authors also found that mudarabah and musharakah expose Islamic banks to more risk-taking behavior amidst the conditioning effect of institutional quality. On the other hand, charity induces the stability of Islamic banks, while zakat increases the risk-taking behavior of the banks. Further, when the quality of institutions was used as a moderator, both zakat and charity induced the stability of Islamic banks. The results were robust when liquidity risk was used and partially robust when portfolio risks were employed as measures of stability.Research limitations/implicationsOne concern regarding the application of Islamic social finance is that it might be a risky strategy for Islamic banks. In terms of research implications, the available evidence suggests that the use of Islamic social finance instruments is not detrimental to the stability of Islamic banks. Hence, regulators and policymakers should not penalize Islamic banks for using Islamic social finance instruments that help provide financial solutions to the underserved and unserved. In terms of research limitations, the study could not include other relevant Islamic social finance instruments such as waqf and qard al-hassan. Furthermore, data availability restricts the analysis to only 12 Islamic banks in fourcountries. As more Islamic banks in different countries venture into Islamic social finance, and the quantity and quality of information improve, future studies could explore the issue further.Social implicationsThe available evidence suggests that the use of Islamic social finance instruments does not worsen the stability of Islamic banks. Given the dominance of sale- and lease-based contracts in Islamic financing (Aggarwal and Yousef, 2000; Šeho et al., 2020), these findings should encourage other Islamic banks to provide financial solutions using other Shariah-compliant contracts including those based on risk-sharing and philanthropy. This would be a better reflection of the Islamic banks’ value proposition as it helps boost social activities that have a high impact on the activities of small businesses, contributing to the real economy and promoting well-being in society.Originality/valuePrevious studies mainly relied on mudarabah, mushakarah and zakat separately as they relate to the performance of Islamic banks. This study explores the impact of social finance which includes charity and zakat to examine their impact on Islamic banks’ stability. Further, the authors use institutional quality as a moderating variable in the relationship between Islamic social finance instruments and the stability of Islamic banks.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-06-2022-0441

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CAMELS, risk-sharing financing, institutional quality and stability of Islamic banks: evidence from 6 OIC countries

Cited by 23 publications

References 55 publications

The asymmetrical linkage between oil price and banking stability in the MENA region

The asymmetrical linkage between oil price and banking stability in the MENA region

Performance Of Islamic Rural Banks Pre and During Pandemic By Maqashid Sharia Index

Social finance, institutional quality and stability of Islamic banks: evidence from four countries

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