A Survival Analysis of Islamic and Conventional Banks

38 Pages Posted: 31 May 2012 Last revised: 11 Sep 2019

See all articles by Vasileios Pappas

Vasileios Pappas

University of Bath

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Marwan Izzeldin

Lancaster University Management School

Ana-Maria Fuertes

Cass Business School, City University of London

Date Written: January 2016

Abstract

Are Islamic banks inherently more stable than conventional banks? We address this question by applying a survival analysis based on the Cox proportional hazard model to a comprehensive sample of 421 banks in 20 Middle and Far Eastern countries from 1995 to 2010. By comparing the failure risk for both bank types, we find that Islamic banks have a significantly lower risk of failure than that of their conventional peers. This lower risk is based both unconditionally and conditionally on bank-specific (microeconomic) variables as well as macroeconomic and market structure variables. Our findings indicate that the design and implementation of early warning systems for bank failure should recognize the distinct risk profiles of the two bank types.

Keywords: Islamic banks, Failure risk, Survival analysis, Financial intermediation

JEL Classification: C41, G21, G20

Suggested Citation

Pappas, Vasileios and Ongena, Steven R. G. and Izzeldin, Marwan and Fuertes, Ana-Maria, A Survival Analysis of Islamic and Conventional Banks (January 2016). Journal of Financial Services Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2070957 or http://dx.doi.org/10.2139/ssrn.2070957

Vasileios Pappas

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom
01225384297 (Phone)

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Marwan Izzeldin

Lancaster University Management School ( email )

Lancaster, LA1 4YX
United Kingdom
01524 594674 (Phone)

HOME PAGE: http://www.lums.lancs.ac.uk/profiles/marwan-izzeldin/

Ana-Maria Fuertes

Cass Business School, City University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 207 477 0186 (Phone)
+44 207 477 8881 (Fax)

HOME PAGE: http://www.city.ac.uk/people/academics/ana-maria-fuertes

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