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The Performance of Islamic Vs. Conventional Banks: Evidence on the Suitability of the Basel Capital Ratios

Author

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  • Mohammad Bitar

    (Concordia University)

  • M. Kabir Hassan

    (University of New Orleans, College of Business Administration)

  • Kuntara Pukthuanthong

    (University of Missouri)

  • Thomas Walker

    (Concordia University)

Abstract

This paper examines the effect of various types of bank capital on the profitability and efficiency of conventional and Islamic banks. Our results show that higher quality forms of capital improve the profitability and efficiency for both systems although the results are stronger for conventional banks. The capital effect is more pronounced for large, too-big-to-fail, and highly capitalized banks. The results are robust across various subsamples, alternative profitability and efficiency measures, and different estimation techniques.

Suggested Citation

  • Mohammad Bitar & M. Kabir Hassan & Kuntara Pukthuanthong & Thomas Walker, 2018. "The Performance of Islamic Vs. Conventional Banks: Evidence on the Suitability of the Basel Capital Ratios," Open Economies Review, Springer, vol. 29(5), pages 1003-1038, November.
    • Handle: RePEc:kap:openec:v:29:y:2018:i:5:d:10.1007_s11079-018-9492-1
    DOI: 10.1007/s11079-018-9492-1
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    Cited by:

    1. Bitar, Mohammad & Tarazi, Amine, 2019. "Creditor rights and bank capital decisions: Conventional vs. Islamic banking," Journal of Corporate Finance, Elsevier, vol. 55(C), pages 69-104.
    2. Mohamed E. Chaffai, 2022. "New evidence on Islamic and conventional bank efficiency: A meta‐regression analysis," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 221-246, January.
    3. Rouetbi, Marwene & Ftiti, Zied & Omri, Abdelwahed, 2023. "The impact of displaced commercial risk on the performance of Islamic banks," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    4. Kok, Seng Kiong & Filomeni, Stefano, 2021. "The holding behavior of Shariah financial assets within the global Islamic financial sector: A macroeconomic and firm-based model," Global Finance Journal, Elsevier, vol. 50(C).
    5. Chaffai, Mohamed, 2020. "Hyperbolic distance function, technical efficiency and stability to shocks: A comparison between Islamic banks and conventional banks in MENA region," Global Finance Journal, Elsevier, vol. 46(C).

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    More about this item

    Keywords

    Bank capital; Basel capital; Profitability; Efficiency;
    All these keywords.

    JEL classification:

    • 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
    • P43 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Finance; Public Finance
    • P47 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Performance and Prospects

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