Financial performance and stability in Islamic banks: Evidence from GCC countries

Majed Alharthi

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Islamic Finance and Banking Studies Banking stability, regulation, efficiency Banking Sector Performance and Management

Abstract

The main objective of this study is to find the determinants of financial performance and stability for Islamic banks in GCC countries during the period 2005-2014. In this study the profitability is represented as three main indicators: the return on assets (ROA), return on equities (ROE) and net interest margin (NIM). On the other side, the stability measures are z-score and capital ratio. The statistical methods in this paper are generalised least squares (GLS) and generalised method of moments (GMM). According to determinants of profitability, the size of and stability of Islamic banks supported the return significantly and positively. For the external variables, inflation decreased profitability significantly while market capitalisation has significant and positive effects on profits. Arab Spring only decreased the NIM significantly but other profitability ratios (ROA and ROE) have net been influenced by Arab Spring. For stability, the financial stability indicators (z-score and capital ratio) found to be strongly important to each other. Lending service supported the stability significantly but affected the capital ratio significantly and negatively. Moreover, the listed Islamic banks were more stable than the unlisted Islamic banks whereas, the listed banks had lower capitals. The strongest advantage in this study showed that Islamic banks in GCC countries were well capitalised by the period of Arab Spring. Generally, the global financial crisis has no effect upon financial performance and financial stability.

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References

2013Islamic vs. conventional banks: Business models, efficiency and stability 2008Islamic Banks and Financial Stability 2005Determinants of Islamic Banking Profitability 2013Islamic and conventional banks' soundness during the 2007–2008 financial crisis 2013Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies 2012Bank profitability and inflation: the case of China 2016Does local religiosity matter for bank risk-taking?2003DETERMINANTS OF PROFITABILITY IN ISLAMIC BANKS: SOME EVIDENCE FROM THE MIDDLE EAST #

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