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Financial Stability of Islamic and Conventional Banks in Saudi Arabia: a Time Series Analysis

Author

Listed:
  • Hassan Ghassan

    () (King Faisal University)

  • Stefano Fachin

    () (Universita' di Roma "La Sapienza")

  • Abdelkarim Guendouz

    () (King Faisal University)

Abstract

Islamic banks are characterised by the compliance to Islamic laws and practices, the main ones being the prohibition of interest and loans trading. Remarkably, during the 2008-2009 financial crisis, when a large number of conventional banks have announced bankruptcy, no single Islamic bank failure has been reported. However, there is no clear consensus in the literature on question of whether Islamic banks are more or less stable than conventional banks. We study a sample of Saudi banks over a period centred on the 2008 financial crisis. The main conclusions are: (i) the variables typically used in financial stability studies may be non-stationary, a feature ignored in the literature, and, (ii), individual heterogeneity may matter more than the conventional or islamic nature of the banks.

Suggested Citation

  • Hassan Ghassan & Stefano Fachin & Abdelkarim Guendouz, 2013. "Financial Stability of Islamic and Conventional Banks in Saudi Arabia: a Time Series Analysis," DSS Empirical Economics and Econometrics Working Papers Series 2013/1, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
  • Handle: RePEc:sas:wpaper:20131
    as

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    File URL: http://www.dss.uniroma1.it/RePec/sas/wpaper/20131_Ghassan_Fachin_Guendoz.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
    1. Enders, Walter & Siklos, Pierre L, 2001. "Cointegration and Threshold Adjustment," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 166-176, April.
    2. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(2), pages 95-113, December.
    3. Martin Cihak & Simon Wolfe & Klaus Schaeck, 2006. "Are More Competitive Banking Systems More Stable?," IMF Working Papers 06/143, International Monetary Fund.
    4. Patrick A. Imam & Kangni R Kpodar, 2010. "Islamic Banking; How Has it Diffused?," IMF Working Papers 10/195, International Monetary Fund.
    5. Ariss, Rima Turk, 2010. "Competitive conditions in Islamic and conventional banking: A global perspective," Review of Financial Economics, Elsevier, vol. 19(3), pages 101-108, August.
    6. Stefano Fachin, 2007. "Long-run trends in internal migrations in italy: a study in panel cointegration with dependent units," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 401-428.
    7. Martin CIHAK, 2007. "Systemic Loss: A Measure of Financial Stability (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(1-2), pages 5-26, March.
    8. Josep Lluís Carrion-i-Silvestre & Andreu Sansó, 2006. "Testing the Null of Cointegration with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 623-646, October.
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    Cited by:

    1. Guglielmo Maria Caporale & Abdurrahman Nazif Catik & Mohamad Husam Helmi & Faek Menla Ali & Mohammad Tajik, 2016. "The Bank Lending Channel in a Dual Banking System: Evidence from Malaysia," Discussion Papers of DIW Berlin 1557, DIW Berlin, German Institute for Economic Research.

    More about this item

    Keywords

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

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