Islamic Banks and Financial Stability: An Empirical Analysis

31 Pages Posted: 4 Feb 2008  

Martin Čihák

International Monetary Fund (IMF)

Heiko Hesse

International Monetary Fund (IMF)

Date Written: Janurary 2008

Abstract

The relative financial strength of Islamic banks is assessed empirically based on evidence covering individual Islamic and commercial banks in 18 banking systems with a substantial presence of Islamic banking. We find that (i) small Islamic banks tend to be financially stronger than small commercial banks; (ii) large commercial banks tend to be financially stronger than large Islamic banks; and (iii) small Islamic banks tend to be financially stronger than large Islamic banks, which may reflect challenges of credit risk management in large Islamic banks. We also find that the market share of Islamic banks does not have a significant impact on the financial strength of other banks.

Keywords: Islamic banking, Financial stability

Suggested Citation

Čihák, Martin and Hesse, Heiko, Islamic Banks and Financial Stability: An Empirical Analysis (Janurary 2008). IMF Working Papers, Vol. , pp. 1-29, 2008. Available at SSRN: https://ssrn.com/abstract=1089682

Martin Cihak (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

Heiko Hesse

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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