Are MENA banks’ capital buffers countercyclical? Evidence from the Islamic and conventional banking systems

Abderrazak Ben maatoug (), Wassim Ben Ayed and Zied Ftiti ()

The Quarterly Review of Economics and Finance, 2019, vol. 74, issue C, 109-118

Abstract: This study investigates the relationship between the business cycle and capital buffers of both Islamic and conventional banks in the Middle East and North African region during 2000–2014. Our results, generated by adopting the two-step generalized method of moments approach, reveal three main findings. First, they support the countercyclicality of the capital buffers of both Islamic and conventional banks. Nevertheless, such behaviour varies across banks. Second, our results provide evidence of different speeds of adjustment costs, which are low (high) for Islamic (conventional) banks. They also highlight that non-performing loans have a positive effect on the procyclicality of the capital buffer. However, countercyclical behaviour is identified for conventional banks. Third, we find that other determinants (e.g. business cycle, bank size, loan growth, regulatory pressure) do not show different procyclical capital buffers for Islamic and conventional banks. Our results are interesting for regulators and policymakers implementing the Basel III guidelines.

Keywords: Capital buffer; Business cycle; Basel III; Panel data (search for similar items in EconPapers)
JEL-codes: C26 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:74:y:2019:i:c:p:109-118

DOI: 10.1016/j.qref.2019.04.006

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