Bank level stability factors and consumer confidence – a comparative study of Islamic and conventional banks’ product mix

Hussein, Kassim (2010): Bank level stability factors and consumer confidence – a comparative study of Islamic and conventional banks’ product mix.

Abstract

This study examines the behaviour of key bank level stability factors of liquidity, capital, risk-taking and consumer confidence in Islamic and conventional banks which operate in the same market. Using fixed effect sample of 194 banks of Gulf Cooperating Countries between 2000 and 2007, we found that liquidity is not determined by bank’s product mix but rather attributed to systematic factors. However, non performing assets (representing loans to sub prime borrowers) have positive and significant relationship with liquidity implying that during the crisis, Islamic banks tend to take stringent risk strategies compared to conventional banks. Furthermore, Islamic banks generally tend to provide higher consumer confidence levels as they were more capitalized than conventional banks, although conventional banks had carried higher averages of liquidity compared to Islamic banks. Consumer confidence levels or depositors’ discipline as proxied by deposits and customer funding over liabilities generally appear to be higher in Islamic banks than conventional banks.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank stability, consumer confidence, depositors’ discipline, Islamic banks, Gulf Cooperating Countries
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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