The Effects of the Global Crisison Islamic and Conventional Banks: A Comparative Study

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.This paper examines the performance of Islamic banks (IBs) and conventional banks (CBs) during the recent global crisis by looking at the impact of the crisis on profitability, credit and asset growth, and external ratings in a group of countries where the two types of banks have significant market share. Our analysis suggests that IBs have been affected differently than CBs. Factors related to IBs' business model helped limit the adverse impact on profitability in 2008, while weaknesses in risk management practices in some IBs led to a larger decline in profitability in 2009 compared to CBs. IBs' credit and asset growth performed better than did that of CBs in 2008-09, contributing to financial and economic stability. External rating agencies' re-assessment of IBs' risk was generally more favorable. 1 We would like to thank Hassan Al-Atrash for his valuable support and for guiding this research. We are grateful to

Volatility transmission between Islamic and conventional equity markets: evidence from causality-in-variance test

“…From the causality-in-variance/volatility spillover test, we can say that there is a risk transfer and hence a contagion between the global conventional equity markets and the Islamic equity. Thus, our findings contrast with the argument that Islamic equity markets are not supposed to transmit risk and volatility to and from conventional equity markets because they are fundamentally different (Dridi and Hassan, 2010;Chapra, 2008;Dewi and Ferdian, 2010). The findings are also insightful to better discern how the Islamic market volatility responds to the shocks from the global influential factors.…”

“…This financial crisis has increased volatility, volatility spillover and contagion among global financial markets including equity markets. Some argue that Islamic equity markets are not supposed to transmit risk and volatility to and from conventional equity markets because they are fundamentally different (Dridi and Hassan, 2010;Chapra, 2008;Dewi and Ferdian, 2010). As discussed in Rehman (2009), Islamic economic and financial principles bear relevance to the recent global turbulence and to the design of the post 2008 crisis financial order.…”

Financing Channels and Monetary Policy in a Dual Banking System: Evidence from Islamic Banks in Indonesia

“…The complexity derives from the challenges in designing a market‐based instrument that satisfies the Islamic prohibition on interest payments and provides for sharing both profits and losses in the interest of monetary control and government financing. At the same time, some researchers have argued that Islamic financial institutions are better suited to absorbing macro‐financial shocks because they have structural advantages over the conventional banking model (Khan, ; Mills and Presley, ; Dridi and Hasan, ). El‐Gamal (), among others, has concluded that Islamic finance simply seeks to replicate the functions of conventional financial instruments, which are primarily a form of rent‐seeking legal arbitrage.…”

Can the Sharia-based Islamic stock market returns be forecasted using large number of predictors and models?

“…There are studies that support the dichotomy hypothesis for these markets (Hakim and Rashidian, 2002;Dewi and Ferdian, 2010) and contend that the Islamic markets have not been affected much by the recent global financial crisis (Chapra, 2008;Dridi and Hassan, 2010;Arouri et al, 2013) compared to their conventional counterparts. Others find a unidirectional relationship between these markets.…”