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An Empirical Study of the Key Profitability Factors of Interest-free Banking vs. Conventional Banking in the MENA Region Following the 2008 Financial Crisis

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  • Mariam Bouarich

Abstract

The stability of any economy is closely tied to the stability of its banking sector, necessitating continuous evaluation and efficiency enhancement. The recent emergence of Interest-free banking in the MENA region and globally has seen rapid growth, attracting global interest. However, limited research has compared the financial performance of this new type of banking with conventional banks, particularly in the MENA region. To address this gap, this study aims to measure and compare the financial performance of 55 conventional banks and 26 interest-free banks across the MENA region from 2008 to 2014, using the CAMELS rating system. Descriptive statistics will be employed to analyze time series data, followed by the One-Way ANOVA analysis to identify significant differences between the two banking systems. Pearson’s correlation coefficient will be used to assess correlations among independent variables and test for multi-collinearity problems. Ultimately, the fixed-effects model will determine how internal factors like capital adequacy, asset quality, management quality, earnings quality, and liquidity impact the financial performance of both banking system types in the MENA region. The study's findings reveal that asset quality, earnings quality, and liquidity are the key drivers of profitability for both interest-free and conventional banks in the MENA region. Â

Suggested Citation

  • Mariam Bouarich, 2023. "An Empirical Study of the Key Profitability Factors of Interest-free Banking vs. Conventional Banking in the MENA Region Following the 2008 Financial Crisis," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(6), pages 1-6.
    • Handle: RePEc:spt:apfiba:v:13:y:2023:i:6:f:13_6_6
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    1. K.K. Siraj & P. Sudarsanan Pillai, 2012. "Comparative Study on Performance of Islamic Banks and Conventional Banks in GCC region," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 2(3), pages 1-6.
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    3. Mr. Jemma Dridi & Maher Hasan, 2010. "The Effects of the Global Crisison Islamic and Conventional Banks: A Comparative Study," IMF Working Papers 2010/201, International Monetary Fund.
    4. Abdus Samad, 2004. "Performance Of Interest-Free Islamic Banks Vis-À-Vis Interest-Based Conventional Banks Of Bahrain," IIUM Journal of Economics and Management, IIUM Journal of Economis and Management, vol. 12(2), December .
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