Stability Of Islamic Versus Conventional Banks

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Stability of Islamic versus conventional banks: Malaysian Case
Wahid, Muhamad Azhari
Dar, Humayon

Purpose: This paper investigates the stability and its determinants involving Malaysian Islamic and conventional banks over the period of 2004 – 2013.
Design: The study employs the financial ratios and z-score index as indicators of bank stability. A series of parametric and non-parametric tests are used to compare the stability of Islamic and conventional banks. Then, we estimate pooled OLS regression controlling for Islamic banks dummy, crisis period dummy, bank specific, market structure, and macroeconomic factor to examine the determinants of bank stability.
Findings: The result reveals that Islamic banks are
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Keywords: Banking, Stability, Islam, Malaysia 1.0 Introduction
The recent 2007 – 2009 global financial crisis has led to series of failures of many conventional banks throughout the world. Furthermore, some empirical researches have evidenced the superiority of Islamic banks’ performance over its conventional counterparts during the crisis period (Hasan & Dridi 2010; Parashar & Venkatesh 2010). These led to increase in global attention towards stability of Islamic banking system.
Despite of increased attention on Islamic banks, recent studies have evidenced mixed result on the stability of Islamic banks over its conventional counterparts (Belouafi et al. 2013; Kassim & Abd. Majid 2010; Rokhim & Gamaginta 2009; Bourkhis & Nabi 2013). Thus, indicates that there is non-consensus on the stability of Islamic banks over its conventional counterparts.
Bank stability during the recent 2007 – 2009 global financial crisis has been studied from various perspectives; among others are the application of various measures of bank stability, determinants of bank stability, and impact analysis. Recent studies which examine the impact of crisis on bank stability have given attention specifically during the crisis period. While it is useful to examine the degree of bank stability during the period of crisis, it is also important to determine its degree after the period of crisis. This is vital as the impact of
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