Empirical evidence on the risk management tools practised in Islamic and conventional banks
Purpose – The purpose of this paper is to analyse the factors responsible for the rise and growth of smaller Islamic banks in the last decade. Design/methodology/approach – Z-score analysis is used to test the stability of both smaller and larger Islamic banks. The pooled ordinary least square (OLS) regression technique is also employed to examine the factors. Findings – The results of this paper show higher z-scores for smaller Islamic banks indicating that the latter have tended to be more stable than larger Islamic banks over the last decade. Z-scores tend to increase with bank size for large Islamic banks, but decrease with size for the small Islamic banks. The OLS regression results confirm that larger banks have greater income diversity than do the smaller banks. Originality/value – Islamic banking represents a radical departure from conventional banking, and from the viewpoint of corporate governance; it embodies a number of interesting features since equity participation, risk and profit-and-loss sharing arrangements form the basis of Islamic financing. Using econometric techniques, this paper provides valuable insights as to the stability of Islamic banks and the factors responsible for the growth of smaller such institutions that has been witnessed in the last decade.
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Volume (Year): 3 (2011)
Issue (Month): 2 (June)
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References listed on IDEAS
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- Luca Errico & Mitra Farahbaksh, 1998. "Islamic Banking: Issues in Prudential Regulations and Supervision," IMF Working Papers 98/30, International Monetary Fund.
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- Martin Čihák & Heiko Hesse, 2010.
"Islamic Banks and Financial Stability: An Empirical Analysis,"
Journal of Financial Services Research,
Springer, vol. 38(2), pages 95-113, December.
- Martin CihÃ¡k & Heiko Hesse, 2008. "Islamic Banks and Financial Stability: An Empirical Analysis," IMF Working Papers 08/16, International Monetary Fund.
- Andreas Jobst, 2007. "The Economics of Islamic Finance and Securitization," IMF Working Papers 07/117, International Monetary Fund.
- Martin CihÃ¡k & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
- Ihsan Isik, 2002. "Cost and Profit Efficiency of the Turkish Banking Industry: An Empirical Investigation," The Financial Review, Eastern Finance Association, vol. 37(2), pages 257-279, 05.
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