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The Impact of the Global Financial Crisis on Profitability of the Banking Industry: A Comparative Analysis

Author

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  • G. Rod Erfani

    (Transylvania University, Lexington, KY 40508, USA)

  • Bijan Vasigh

    (Department of Business, Embry-Riddle Aeronautical University, Daytona Beach, FL 32114, USA)

Abstract

In this paper, the effects of the recent global financial crisis on efficiency and profitability of financial institutions were analyzed. In a comparative study, the impacts of the global financial crisis on the performance of Islamic and commercial banks were examined. The fundamental difference between Islamic and conventional banking is that Islamic banking is founded upon the ethical principles of Islamic tradition and law (Sharia). By utilizing a sample of eight Islamic banks and eleven commercial banks, the impact of the global financial crisis on efficiency and profitability of the banking sector was evaluated. This study covered the period from 2006 to 2013. The results of this research were obtained from the Altman Z-score model, ratio analysis, the data envelopment analysis (DEA) method, and the seemingly unrelated regression (SUR) model. The results show that during the study period, Islamic banks (IBs) managed to maintain their efficiency while most commercial banks (CBs) suffered a loss in their efficiency. Furthermore, this study found that the financial crisis did not have a significant impact on the profitability of Islamic banks.

Suggested Citation

  • G. Rod Erfani & Bijan Vasigh, 2018. "The Impact of the Global Financial Crisis on Profitability of the Banking Industry: A Comparative Analysis," Economies, MDPI, vol. 6(4), pages 1-13, December.
    • Handle: RePEc:gam:jecomi:v:6:y:2018:i:4:p:66-:d:189564
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    References listed on IDEAS

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    4. Sahabuddin, Mohammad & Muhammad, Junaina & Yahya, Mohamed Hisham & Mohammed Shah, Sabarina, 2020. "Co-movements between Islamic and Conventional Stock Markets: An Empirical Evidence," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(3), pages 27-40.
    5. Mukdad Ibrahim, 2020. "The Effect of the Global Financial Crisis on the Profitability of Islamic Banks in UAE," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 181-188, January.
    6. Larissa M. Batrancea, 2021. "An Econometric Approach on Performance, Assets, and Liabilities in a Sample of Banks from Europe, Israel, United States of America, and Canada," Mathematics, MDPI, vol. 9(24), pages 1-22, December.
    7. Wicaksono, Ahmad Tibrizi Soni, 2022. "Islamic Bank Deposits during COVID-19 Pandemic: A Spatial Finance Approach," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 56(1), pages 135-149.
    8. Baogui Xin & Wei Peng & Yekyung Kwon & Yanqin Liu, 2019. "Modeling, discretization, and hyperchaos detection of conformable derivative approach to a financial system with market confidence and ethics risk," Papers 1903.12267, arXiv.org, revised Apr 2019.
    9. Nur Setyowati, 2019. "Macroeconomic Determinants of Islamic Banking Products in Indonesia," Economies, MDPI, vol. 7(2), pages 1-15, June.

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