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Financial Stability Of Islamic And Conventional Banks In Bangladesh: Revisiting Stability Measures And Analyzing Stability Behavior

Author

Listed:
  • Md Enayet Hossain

    (Credence Asset Management Limited)

  • Mahmood Osman Imam

    (University of Dhaka)

Abstract

This study intends to assess the relative financial stability of Islamic banks in Bangladesh using three different Z-Scores as financial stability measures, based on a sample of 29 listed commercial banks (23 conventional and 6 Islamic) in Bangladesh over the period 2005-2016. Apart from the existing measure of financial stability, Z-Score, the paper contributes to the literature by developing an alternative Z-Score based on bank’s loan portfolio infection ratio. We first use pair-wise comparison and find that Islamic banks are financially more stable in two stability measures i.e. Z-Score (based on Capital Adequacy Ratio) and Z-Score (based on Infection Ratio). We then perform static (random effects) and dynamic (GMM) panel data analysis. By controlling for bank-specific, industry-specific and macroeconomic variables in the regressions, we find that Islamic banks are financially more stable in 2 panel regressions of Z-Score (based on Infection Ratio). We also find that the presence of Islamic banks increases the stability of all banks in the system including their conventional peers.

Suggested Citation

  • Md Enayet Hossain & Mahmood Osman Imam, 2018. "Financial Stability Of Islamic And Conventional Banks In Bangladesh: Revisiting Stability Measures And Analyzing Stability Behavior," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 3(2), pages 293-314, February.
    • Handle: RePEc:idn:jimfjn:v:3:y:2018:i:2f:p:293-314
    DOI: https://doi.org/10.21098/jimf.v3i2.893
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    More about this item

    Keywords

    Financial Stability; Financial Stability Measures; Z Scores; Z Scores based on CAR; Z Scores based on IR; Islamic Banking;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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