IS ISLAMIC BANKS BETTER THAN CONVENTIONAL BANKS IN THE TIME OF UNCERTAINTY?

Ferry Syarifuddin ()
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Ferry Syarifuddin: Bank Indonesia

No WP/06/2022, Working Papers from Bank Indonesia

Abstract: This research aims to examine how uncertainty affects the banks stability of Islamic and conventional banks in OIC countries. Furthermore, this study investigates spillover effects of bank stability among OIC countries. A sample set of 201 banks from 16 OIC countries between 2013-2020 in yearly-basis data and spatial data panel econometrics methodology are used to accomplish these purposes. For robustness checks, spatial weighting comparison will be used, enriched with the marginal effect measurement and expert opinion questionnaires. Inverse distance will be used as the weighting of the main estimation, while trade volume and GDP are used for robustness checks. This study finds that that Islamic bank has more resiliency than conventional banks in term of stability in time of uncertainty. Meanwhile, there is strong evidence of spatial relationship of bank stability between host and neighboring OIC countries. The increment of uncertainty is significantly followed by the rising conventional bank stability, while on the contrary, Islamic bank doesn’t shows any significant instability. The same goes on spillover effect, the reduction of bank stability in host country is followed by the reduction of neighboring bank stability. These results are robust due to the consistent outcome throughout two different weighting matrices, marginal effect measurement, and expert opinion.

Keywords: Uncertainty; Islamic bank; Bank stability; Bank performance; Spatial econometrics (search for similar items in EconPapers)
JEL-codes: G01 G21 G32 R12 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2022
New Economics Papers: this item is included in nep-isf, nep-mfd and nep-ure
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