Financial Stability of Islamic and Conventional Banks in Saudi Arabia: a Time Series Analysis

Hassan, Ghassan and Stefano, Fachin and Guendouz, Abdelkarim A. (2012): Financial Stability of Islamic and Conventional Banks in Saudi Arabia: a Time Series Analysis. Published in: DSS Empirical Economics and Econometrics Working Papers Series , Vol. 2013/1, No. DSS-E3 WP (January 2013): pp. 1-21.

Abstract

Islamic banks are characterized by their compliance with Islamic laws and practices, the main ones being the prohibition of interest and loan trading. Remarkably, during the 2008-2009 financial crisis, when a large number of conventional banks have announced bankruptcy, no single Islamic bank failure has been reported. However, there is no clear consensus in the literature on the question of whether Islamic banks are more or less stable than conventional banks. We study a sample of Saudi banks over a period centered on the 2008 financial crisis. The main conclusions are: (i) the variables typically used in financial stability studies may be non-stationary, a feature ignored in the literature; (ii) individual heterogeneity may matter more than the conventional or Islamic nature of the banks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic Banks; Financial Crisis; Financial Stability; Z-score Model; Saudi Arabia.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation

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