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Business dynamics, efficiency, asset quality and stability: The case of financial intermediaries in Pakistan

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  • Mirza, Nawazish
  • Rahat, Birjees
  • Reddy, Krishna

Abstract

This research is aimed at assessing the possible differences in business dynamics, cost efficiency, asset quality and financial stability of conventional, Shariah compliant banks and non-banking financial institutions (NBFIs) in Pakistan, using an unbalanced panel between 2005 and 2013. Theoretically, these three financial intermediaries should demonstrate differences in various business attributes. However, we observe fewer than expected differences between conventional and Islamic banks. We report that Islamic banks have superior asset quality and financial stability than conventional banks. However, certain similarities are present in their respective business models. On the contrary, NBFIs demonstrate differences in business dynamics, with high fee based income and non-deposit funding, as compared to conventional banks. Due to higher business risk and variance in profitability, we find that NBFIs are financially more fragile, irrespective of their stronger capitalization, as compared to commercial banks.

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  • Mirza, Nawazish & Rahat, Birjees & Reddy, Krishna, 2015. "Business dynamics, efficiency, asset quality and stability: The case of financial intermediaries in Pakistan," Economic Modelling, Elsevier, vol. 46(C), pages 358-363.
    • Handle: RePEc:eee:ecmode:v:46:y:2015:i:c:p:358-363
    DOI: 10.1016/j.econmod.2015.02.006
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    9. Assad Ullah & Xinshun Zhao & Muhammad Abdul Kamal & Adeel Riaz & Bowen Zheng, 2021. "Exploring asymmetric relationship between Islamic banking development and economic growth in Pakistan: Fresh evidence from a non‐linear ARDL approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6168-6187, October.
    10. Hasan, Zubair, 2014. "Risk sharing versus risk transfer in islamic finance," MPRA Paper 62810, University Library of Munich, Germany, revised Mar 2015.
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    13. Hasan, Zubair, 2014. "Risk sharing versus risk transfer in Islamic finance: revised," MPRA Paper 62826, University Library of Munich, Germany, revised Mar 2015.
    14. Hassan, M. Kabir & Aliyu, Sirajo, 2018. "A contemporary survey of islamic banking literature," Journal of Financial Stability, Elsevier, vol. 34(C), pages 12-43.
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