The impact of global financial crisis on conventional and Islamic banks in the GCC countries

Abstract

Using large dataset from audited financial statements of 81 banks in the Gulf Cooperation Council (GCC) region, this article aims at assessing the performance of Islamic banks and conventional banks during the 2008 financial crisis. Unlike major studies that explored this area of study in the GCC countries, this paper investigates the performance of both types of banks before, during, and after the 2008 financial crisis, while covering four different financial performance measures, namely, efficiency, profitability, liquidity, and solvency. Moreover, this investigation is undertaken while covering a larger time span (2006–2012) than perhaps all similar works that covered similar study on the GCC region. With the use of mixed‐effect linear regression, the paper shows that, compared with Islamic banks, conventional banks have sustained a better performance over the 2006–2012 period in relation to efficiency and return on assets. In this context, the paper puts a note on the shortcomings of the institutional arrangement of the Islamic banks that impeded their performance during the crisis as well as on the active role of GCC governments during the financial crash.

Panel financial ratios data underlying the performance of conventional and islamic banks operating in GCC

“…Our choice of these performance measures stems from our interest in comparing the results of our study with those of prominent studies that used accounting and financial ratios to assess banks performance during the 2008 financial crisis (see for example, [2], [5], [3]; [6]. In fact, our research [4] aimed at compiling important financial and accounting performance measures in one study while considering larger time pan than the one considered by similar studies.…”

Oman’s Islamic Banking Performance amidst Covid-19 Outbreak: Prospects and Challenges

“…2018 becomes a golden year for Oman Islamic banking. The banking industry was able to significantly improve its profitability to over OMR34 billion or increase by around 76% over the previous year and was recorded as the fastest-growing Islamic banking market in the GCC region with a growth rate of 14% (Salih et al, 2019). This tremendous accomplishment was achieved due to the hard work and determination of the Islamic banking stakeholders who joined hand to hand to prove the impossible thing become possible (Al-Shiabah & Ahmed Mohammed, 2020).…”

“…Moreover, Islamic banking entities are also able to generate assets with a total of OMR4.3 billion representing around 13% of the banking assets in the Sultanate (Al-Shiabah & Ahmed Mohammed, 2020). Therefore, it is predicted that the GCC region will continue as driving growth for global Islamic finance assets for the next several years and remain robust with long-term prospects (Salih et al, 2019). However, Islamic banks shall be cautioned against self-comfort and complacency that would jeopardize the pace of the growth for the next 5 years.…”

Efficiency of Participation and Conventional Banks: Evidence from Turkey

“…In this regard, the majority of the studies that perceive the existence of Islamic finance as a detrimental factor in an economy, suggest that, the Islamic finance institutions are sub-optimally utilizing their funds (Abdel Megeid, 2017;Chaffai & Medhioub, 2018;Marzuki & Worthington, 2017). Additionally, some studies suggest that, in countries where Islamic finance has a dominant role in financial system, economy growth may be stumped due to the restricted or limited use of the debt leverage (Al-Nasser Mohammed & Joriah Muhammed, 2017;Salih et al, 2018).…”