Is Islamic Banking More Procyclical? Cross-Country Evidence

Alexandra Zins and Laurent Weill
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Alexandra Zins: LaRGE Research Center, Université de Strasbourg

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: This paper investigates cyclicality of Islamic banking relative to conventional banking. We examine whether loan growth and profitability have a different sensitivity to economic growth for Islamic banks and for conventional banks. We use panel data from 525 banks covering 16 countries with dual banking systems spanning the period from 2008 to 2018. We find no difference in lending cyclicality: Islamic banks and conventional banks have both a procyclical lending behavior. Profitability is procyclical for Islamic banks but not for conventional banks. Our findings support the view that Islamic banking presence does not contribute to strengthen economic stability.

Keywords: Islamic banking; loan growth; financial stability; bank profitability; business cycles; procyclicality. (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-isf
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Journal Article: Is Islamic Banking More Procyclical? Cross-Country Evidence (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2020-03

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