Islamic Banks and Financial Stability: A Comparative Empirical Analysis between MENA and Southeast Asian Countries

Abstract:     
The aim of this paper is to investigate whether Islamic banks are more stable than conventional banks. To measure the financial stability, we compute the z-score for a sample of 557 banks in 16 countries where Islamic and conventional banks coexist over the period 2000-2008. We use a robust estimation for analyzing data that are contaminated with outliers and leverage points in the data. We use also a quantile estimation to allow us to address the question whether the factors that cause high fragility are systematically different from the factors that cause medium or low fragility. This empirical analysis explores causes of insolvency risk between Middle East and North Africa and South East Asian countries. Finally, by controlling for various factors and by favoring a comparative analysis between the regions, this article is an extension of the study begun by Čihák and Hesse (2010).

Number of Pages in PDF File: 31

Keywords: Islamic Banking, Financial Stability, Z-score, MENA, Southeast Asia

JEL Classification: G21, G32, G33

Accepted Paper Series