Credit risk and banking stability: a comparative study between Islamic and conventional banks

Abstract

Purpose This paper aims to evaluate the credit risk of Islamic and conventional banks and its relationship with the capital in 14 countries of the Middle East and North Africa region. To do this, a sample of 58 Islamic banks and 89 conventional banks during the 2005-2015 period was used. Design/methodology/approach In fact to measure the difference between Islamic banks and their conventional counterparts in terms of credit risk, the generalized method of moments is used. Findings The results showed that the conventional model has a higher credit risk than the Islamic one. These results also showed that the larger an Islamic bank is, the higher its credit risk will be to get closer to that of conventional banks. Originality/value This investigation is based on actual data for each bank available in the Bank-Scope database provided by the Van Dijik office (2013). It should be noted that almost all the recent empirical studies interested in the world banking sector essentially use this database.

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