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Jurnal Ekonomi Malaysia

50 (1) 2016 111 – 132

Stability of Islamic versus Conventional Banks: A Malaysian Case
Kestabilan Bank Islam berbanding Bank Konvensional: Kajian Kes Malaysia Kestabilan Bank Islam berbanding Bank Konvensional: Kajian Kes Malaysia

Markfield Institute of Higher Education
LE67 9SY Leicestershire
United Kingdom

muhamadazhari.wahid@gmail.com

Edbiz Corporation Limited
305 Crown House
North Circular Road
Park Royal London NW10 7 PN
United Kingdom

humayon@humayondar.com

Abstract

The purpose of this paper is to raise certain questions within the Malaysian banking sector and find the appropriate answers. The research questions of this paper are: a) whether Islamic banks are more stable relative to conventional banks; and b) what are the determinants of stability for both types of banks? In measuring and comparing the stability of Islamic and conventional banks, this study employs the financial soundness indicators (FSI) of the International Monetary Funds (IMF) and the z-score index. These are then followed by a series of parametric and non-parametric tests. Thereafter, a pooled ordinary least squares (OLS) robust regression is applied to examine the determinants of stability for Islamic and conventional banks. The results reveal that Islamic banks are significantly less stable than conventional banks. However, when the analysis is conducted based on a sample of small and large banks, the results suggest that only large Islamic banks are less stable than large conventional banks. In contrast, small Islamic banks are found to be more stable than small conventional banks. Furthermore, the results reveal that bank size, the level of capitalisation and income diversification are important determinants for the stability of Malaysian Islamic and conventional banks.

Keywords

Banks; crisis; financial stability

Author’s Acknowledgement

We are grateful for the financial support from the Universiti Sains Islam Malaysia. We would like to thank the comments and suggestions given by Dr. Marwan Izzeldin from Lancaster University and the participants of International Conference on Islamic Accounting and Business Research held in Glasgow, 2015 where the earlier version of this paper was presented.

http://dx.doi.org/10.17576/JEM-2016-5001-09
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Wahid, , & Dar, (2016). Stability of Islamic versus Conventional Banks: A Malaysian Case. Jurnal Ekonomi Malaysia, 50(1), 111–132. http://dx.doi.org/10.17576/JEM-2016-5001-09

@article{wahid2016stability,
  title={Stability of Islamic versus Conventional Banks: A Malaysian Case},
  author={Wahid, Muhamad Azhari and Dar, Humayon},
  journal={Jurnal Ekonomi Malaysia},
  volume={50},
  number={1},
  pages={111—132},
 

year={2016},
}

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