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Panel Modeling of Z-score: Evidence from Islamic and Conventional Saudi Banks

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  • Ghassan, Hassan B.
  • Guendouz, Abdelkarim

Abstract

Several studies on the banking sector have shown that Islamic banks are more financially robust and stable compared to conventional banks, mostly in periods of financial crises. The aim of this research is to measure and compare the level of stability between Islamic and conventional banks in Saudi Arabia using quarterly data. The sample covers around two-thirds of banks operating in the Saudi stock market, and data comprises the last global financial crisis. The panel data model shows that Islamic banks relatively reduce the financial stability index; meanwhile, they contribute efficiently to enhance financial stability through the diversification of their assets. According to our findings Riyad Bank and SAMBA positively impact the financial stability, while Al-Rajhi bank has a positive but moderate role in enhancing the banking stability. As well, the Saudi banking sector exhibits a weak competitiveness which negatively impact the banking stability. Consequently, the limited presence of Islamic banks in the Saudi banking sector menaces any efforts to improve the financial stability.

Suggested Citation

  • Ghassan, Hassan B. & Guendouz, Abdelkarim, 2018. "Panel Modeling of Z-score: Evidence from Islamic and Conventional Saudi Banks," MPRA Paper 95239, University Library of Munich, Germany, revised 05 Jan 2019.
    • Handle: RePEc:pra:mprapa:95239
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    References listed on IDEAS

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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; Financial Crisis; Financial Stability; Z-score Model; Saudi Arabia.;
    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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