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Assessing Islamic Banking System Vulnerabilities in Pakistan: Evidence from ‘Bankometer’ Model

Author

Listed:
  • Ali, Azam

    (State Bank of Pakistan, Karachi, Pakistan.)

  • Zulkhibri, Muhamed

    (The Islamic Research and Teaching Institute (IRTI))

  • Kishwar, Tanveer

    (Jinnah University for Women, Karachi, Pakistan)

Abstract

Recent global financial crises affected not only conventional banking, but also Islamic banks to some extent due to the absence of early warning systems. To avoid such vulnerabilities, there must be efficient measures that could identify in advance the emergence of susceptibility of financial crises. This study proposes the ‘Bankometer’ model as an early warning tool to help Islamic banks overcome such challenges by providing them with useful Shari’ah-compliant guidelines and to desist from vulnerabilities of future financial crises. Using published unbalanced quarterly data of all Islamic banks operating in Pakistan, we use regression models to examine the impact of global financial crisis on the banking system. The results suggest that regulatory capital, funding cost, size, return on assets and return on equity are associated with crisis period. The evidences also suggest that ‘Bankometer’ as an early warning tools could be useful for assessing Islamic banking system vulnerabilities in Pakistan.

Suggested Citation

  • Ali, Azam & Zulkhibri, Muhamed & Kishwar, Tanveer, 2018. "Assessing Islamic Banking System Vulnerabilities in Pakistan: Evidence from ‘Bankometer’ Model," Working Papers 2018-4, The Islamic Research and Teaching Institute (IRTI).
  • Handle: RePEc:ris:irtiwp:2018_004
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    More about this item

    Keywords

    Bankometer; global financial crisis; Islamic banks; Pakistan;
    All these keywords.

    JEL classification:

    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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