Time Series Analysis of Financial stability of banks: Evidence from Saudi Arabia

Hassan Ghassan () and Stefano Fachin

MPRA Paper from University Library of Munich, Germany

Abstract: Islamic banks are characterized by their compliance to Islamic laws and practices, primarily the prohibition of interest and the trading of loans. During the 2008–2009 financial crisis, when a large number of conventional banks announced bankruptcy, no Islamic bank failures were reported. However, there is no clear consensus in the literature on the question of whether Islamic banks are more or less stable than conventional banks. To shed some light on this issue, we studied a sample of Saudi banks using quarterly data over a period centered on the 2008 financial crisis. Careful analysis of the data suggested first of all that many of the variables typically used in financial stability studies may be non-stationary, a methodological point largely ignored in the literature. Using time-series methods suitable for this type of data, we concluded that individual heterogeneity may matter more than either the conventional or Islamic nature of the banks. Concentrating on the largest banks, we find the Islamic banks contribute positively to the stability of the system.

Keywords: Financial crisis; financial stability; z-score model; Islamic banks; Saudi Arabia. (search for similar items in EconPapers)
JEL-codes: C1 G21 G28 (search for similar items in EconPapers)
Date: 2014-06-17, Revised 2016-02-05
New Economics Papers: this item is included in nep-ara
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Citations: View citations in EconPapers (8)

Published in Review of Financial Economics Forthcoming 2016 (2016): pp. 1-24

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https://mpra.ub.uni-muenchen.de/122995/1/MPRA_paper_71930.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/122983/1/MPRA_paper_71930.pdf revised version (application/pdf)

Related works:
Journal Article: Time series analysis of financial stability of banks: Evidence from Saudi Arabia (2016)
Journal Article: Time series analysis of financial stability of banks: Evidence from Saudi Arabia (2016)
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