Cyclicality of bank credit growth: Conventional vs Islamic banks in the GCC

Mohamed Albaity, Abu Hanifa Md. Noman, Ray Saadaoui Mallek and Mohammad Al-Shboul

Economic Systems, 2022, vol. 46, issue 1

Abstract: Using a panel of 104 banks from the six Gulf Council Countries, we investigate the cyclicality of credit growth with regard to the discrepancies between Islamic banks and conventional banks. We found that Islamic banks are pro-cyclical and have higher credit growth compared to conventional banks. Indeed, the Profit and Loss Sharing (PLS) mechanism helps Islamic banks not to curb their credit growth during adverse economic conditions. We tested the role of the growth rate of market sentiment and found that positive market sentiment leads to higher bank credit growth. Furthermore, we investigate the impact of several bank-specific variables on bank credit growth and discuss to what extent diversification and the investment portfolio reshape the credit growth process.

Keywords: Credit growth; Sentiment; Islamic banks; Conventional banks; GMM; GCC (search for similar items in EconPapers)
JEL-codes: G1 G10 G2 G21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:46:y:2022:i:1:s0939362521000327

DOI: 10.1016/j.ecosys.2021.100884

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