Main Article Content
Bank Size, Dual Banking, Islamic Banking, Malaysia, Stability
Purpose of Study: This paper aims to explore whether Islamic banks are more stable when compared with conventional banks in a dual banking system.
Methodology: This research employs Pooled OLS methodology for 42 banks, including 27 conventional banks and 15 Islamic banks, for the period of 2005-2016.
Results: The study suggests that Islamic banks are less stable compared to conventional banks in overall banking sector. Furthermore, it is found that big Islamic banks are less stable than big conventional banks and small Islamic banks are less stable than small conventional banks. The results disapprove of the widespread belief that Islamic banks are more stable and more resilient to adverse shocks in the financial crisis. Moreover, while investigating the shift in overall level of banking stability with respect to financial crises, regardless of bank type and bank size, it is observed that the overall banking stability is enhanced after the financial crises. This is intriguing and a sigh of relief for policy makers and regulators in the country.
Implications/Applications: This research is of contribution to policy makers and central banks in the countries with highly dual banking environment and for the central banks striving to become International Islamic financial hub.
Agbabiaka-Mustapha, M. and K.S. Adebola, 2018. Exploring curriculum innovation as a tool towards attainment of self reliance of NCE graduates of islamic studies. International Journal of Emerging Trends in Social Sciences, 2(1): 21-27.
Akgun, L. and F. Tektufekci, 2017. Audit in Russian federation and the research toward the determination of the functioning of audit mechanism. Asian Journal of Economic Modelling, 5(1): 23-34.
Alam, N., B.A. Hamid and D.T. Tan, 2018. Does competition make banks riskier in dual banking system.Borsa Istanbul Review.Available at: https://doi.org/10.1016/j.bir.2018.09.002.
Alfauzan, A.A. and N. Tarchouna, 2017. The role of an aligned curriculum design in the achievement of learning outcomes. Journal of Education and e-Learning Research, 4(3): 81-91.
Altunkaya, H. and A. Ates, 2018. Sources of reading anxiety among the learners of Turkish as a foreign language. Asian Journal of Education and Training, 4(3): 161-169.
Bourkhis, K. and M. Sami, 2013. Islamic and conventional banks’ soundness during the 2007–2008 financial crisis. Review of Financial Economics, 22(2).Available at: https://doi.org/10.1016/j.rfe.2013.01.001.
Calomiris, C.W. and B. Wilson, 2004. Bank capital and portfolio management: The 1930s “capital crunch” and the scramble to shed risk. The Journal of Business, 77(3).Available at: https://doi.org/10.1086/386525.
Cihák, M. and H. Hesse, 2010. Islamic banks and financial stability: An empirical analysis. Journal of Financial Services Research, 38.Available at: https://doi.org/10.1007/s10693-010-0089-0
Clark, E., N. Radić and A. Sharipova, 2017. Bank competition and stability in the CIS markets. Journal of International Financial Markets, Institutions and Money.Available at: https://doi.org/10.1016/j.intfin.2017.12.005.
Danisman, G.O. and P. Demirel, 2018. Bank risk-taking in developed countries: The influence of market power and bank regulations. Journal of International Financial Markets.Available at: https://doi.org/10.1016/j.intfin.2018.12.007.
Demirgüç-Kunt, A. and H. Huizinga, 2010. Bank activity and funding strategies: The impact on risk and returns. Journal of Financial Economics, 98(3).Available at: https://doi.org/10.1016/j.jfineco.2010.06.004.
Fernández, A.I., F. González and N. Suárez, 2016. Banking stability, competition, and economic volatility. Journal of Financial Stability, 22.Available at: https://doi.org/10.1016/j.jfs.2016.01.005.
Gamaginta and R. Rokhim, 2015. The stability comparison between Islamic banks and conventional banks: Evidence in Indonesia. 5th Edn., Doha: Financial Stability and Risk Management in Islamic Financial Institutions.
Hasan, M. and J. Dridi, 2010. The effects of the global crisis on Islamic and conventional banks : A comparative study.
Jiménez, G., J.A. Lopez and J. Saurina, 2013. How does competition affect bank risk-taking? Journal of Financial Stability, 9(2).Available at: https://doi.org/10.1016/j.jfs.2013.02.004.
Kabir, M.N. and A.C. Worthington, 2017. The “competition–stability/fragility” nexus: A comparative analysis of islamic and conventional banks. International Review of Financial Analysis, 50.Available at: https://doi.org/10.1016/j.irfa.2017.02.006.
Kassim, S.H. and M.S.A. Majid, 2010. Impact of financial shocks on Islamic banks: Malaysian evidence during 1997 and 2007 financial crises. International Journal of Islamic and Middle Eastern Finance and Management, 3(4).Available at: https://doi.org/10.1108/17538391011093243.
Laeven, L. and R. Levine, 2009. Bank governance, regulation and risk taking. Journal of Financial Economics, 93(2).Available at: https://doi.org/10.1016/j.jfineco.2008.09.003.
Leroy, A. and Y. Lucotte, 2017. Is there a competition-stability trade-off in European banking? Journal of International Financial Markets, Institutions and Money, 46.Available at:https://doi.org/10.1016/j.intfin.2016.08.009.
Liu, H., P. Molyneux and L.H. Nguyen, 2012. Competition and risk in South East Asian commercial banking. Applied Economics, 44(28).Available at: https://doi.org/10.1080/00036846.2011.579066.
Pappas, V., 2012. Failure risk : A comparative analysis of islamic banks and conventional banks. Business School of Lancaster University.
Pappas, V., 2012;2016. Failure risk : A comparative analysis of islamic banks and conventional banks. Business School of Lancaster University.
Pappas, V., 2016. A survival analysis of islamic and conventional banks.Available at: https://doi.org/10.1007/s10693-016-0239-0.
Parashar, S.P. and J. Venkatesh, 2010. How did islamic banks do during global financial crisis ? Banks and Bank Systems, 5(4). Available from https://www.researchgate.net/publication/298435983_How_Did_Islamic_Banks_Do_During_Global_Financial_Crisis.
Rahim, S.R.M. and R.H. Zakaria, 2013. Comparison on stability between islamic and conventional banks in Malaysia. Journal of Islamic Economics, Banking and Finance, 9(3).
Rahman, R.A. and M.Y. Masngut, 2014. The use of “CAMELS” in detecting financial distress of islamic banks In Malaysia. The Journal of Applied Business Research, 30(2).
Rajhi, W. and S.A. Hassairi, 2013. Islamic banks and financial stability: A comparative empirical analysis between MENA and Southeast Asian Countries’, RégionetDéveloppement, 37.Available at: https://doi.org/10.2139/ssrn.2010126.
Risfandy, T., A. Tarazi and I. Trinugroho, 2018. Competition in dual markets: Implications for banking system stability.Available at: https://doi.org/10.2139/ssrn.3158510.
Shafik, S., 2014. Financial stability and liquidity : Evidence from conventional and islamic banks in the GCC Region. University of Newcastle. Available from https://nova.newcastle.edu.au/vital/access//manager/Repository/uon:14057.
Turk, A.R., 2010. On the implications of market power in banking: Evidence from developing countries. Journal of Banking and Finance, 34(4).Available at: https://doi.org/10.1016/j.jbankfin.2009.09.004.
Verbeet, M., 2014. Stability of Islamic banks: A comparison of conventional and Islamic banks. In Ahmed, H., Asutay, M., and Wilson, R. (Eds) Islamic Banking and Financial Crisis Reputation, Stability and Risks. EDINBURGH University Press.
Wahid, M.A. and H. Dar, 2016. Stability of Islamic versus conventional banks: A Malaysian case. Malaysia Economic Journal, 50(1).Available at: https://doi.org/10.17576/JEM-2016-5001-09.