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Panel modeling of z-score: evidence from Islamic and conventional Saudi banks

Author

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  • Hassan Belkacem Ghassan
  • Abdelkrim Ahmed Guendouz

Abstract

Purpose - This paper aims to measure the stability extent of the banking sector in Saudi Arabia, including Islamic and conventional banks (CBs), using quarterly data. Design/methodology/approach - The paper uses seemingly unrelated regressions to estimate the determinants of the z-score. Findings - The panel data model shows that Islamic banks (IBs) reduce the financial stability index relatively; meanwhile, they contribute efficiently to enhance the financial stability through the diversification of their assets. The Saudi banking sector exhibits strong concentration affecting the financial stability negatively. Research limitations/implications - The paper’s topic can be extended to cover the recent period. Practical implications - The limited presence of IBs in the Saudi banking sector jeopardizes any effort to improve the financial stability. Social implications - By attracting more clients, IBs would contribute more to the financial stability in the Saudi economy. Also, the monetary authority has to expand the share of IBs in the financial system at least 50-50 compared to CBs. Originality/value - The z-score is mostly analyzed with yearly data; in this paper we use quarterly data to describe at infra-annual frequency the variability of the z-score index. Also, we consider in detail the statistical properties of the banks’ data.

Suggested Citation

  • Hassan Belkacem Ghassan & Abdelkrim Ahmed Guendouz, 2019. "Panel modeling of z-score: evidence from Islamic and conventional Saudi banks," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 12(3), pages 448-468, July.
    • Handle: RePEc:eme:imefmp:imefm-04-2018-0122
    DOI: 10.1108/IMEFM-04-2018-0122
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    Cited by:

    1. Mohamed Ben Mimoun, 2021. "Stability of Conventional and Islamic banks, externalities and resilience to crises: evidences from comprehensive Saudi banks' time-series data," Economics Bulletin, AccessEcon, vol. 41(3), pages 1165-1179.

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    More about this item

    Keywords

    Islamic banks; Saudi Arabia; Financial crisis; Financial stability; Z-score model; C12; C23; G21; G28; G33;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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