Financial Stability of Islamic and Conventional Banks of the MENA Region: Post and Pre-Crisis of CAMELS Framework
Keywords:
Banks Stability, CAMELS, Conventional Banks, Financial Stability, Islamic Banks.
Abstract
The present study provides new empirical evidence of bank stability measure for 12 Islamic and conventional banks in the MENA region, for a period from 2005 to 2014. The most known method of measuring bank stability is using CAMELS variables; it was adopted by multiple central banks. After calculating financial ratios for the CAMELS framework, we calculate the average for each variable for the two types of banks, for three periods: Pre-crisis 2005-2006, Subprime Crisis 2007-2008, and Post-Crisis 2009-2014, to examine the effect of the crisis on the soundness of Islamic and conventional banks.
References
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Alhassan, A. L., Kyereboah-Coleman, A., & Andoh, C. (2014). Asset quality in a crisis period: An empirical examination of Ghanaian banks. Review of Development Finance, 4(1),50–62.
Al-Jarrah, I., & Molyneux, P. (2005). Efficiency in Arabian banking. In M. Iqbal, & R. Wilson (Eds.), Islamic Perspectives on Wealth Creation (pp. 25-43). Edinburgh University Press: Edinburgh.
Alqahtani, F., & Mayes, D. G. (2018). Financial stability of Islamic banking and the global financial crisis: Evidence from the Gulf Cooperation Council. Economic Systems, 42(2), 346–360.
Askari, H., & Krichene, N. (2014). Islamic Finance: An Alternative Financial System for Stability, Equity, and Growth. PSL Quarterly Review,67(268), 9-54.
Balteş, N., Rodean, C., & Daciana, M. (2014). Study regarding the Financial stability of commercial banks listed on Bucharest Stock Exchange of CAMELS rating outlook. Journal of International Studies, 7(3), 133-143.
Bank Negara Malaysia. (n.d.). The Importance of Financial Stability. Retrieved from: https://www.bnm.gov.my/index.php?ch=fs&pg=fs_ovr_imp&ac=114
Bank of Korea. (n.d.). Why is Financial Stability Important?. Retrieved from: https://www.bok.or.kr/eng/main/contents.do?menuNo=400037
Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2010). Islamic vs. Conventional Banking: Business Model, Efficiency and Stability. Policy Research Working Paper 5446.
Bourkhis, K., & Nabi, M. S. (2013). Islamic and conventional banks' soundness during the 2007–2008 financial crisis. Review of Financial Economics, 22(2), 68-77.
Chant, J., Lai, A., Illing, M., & Fred, D. (2003). Essays on Financial Stability. Technical Report N°95. Bank of Canada, 1-111.
Chapra, M. U. (2009). Ethics and Economics: An Islamic Perspective. Islamic Economic Studies, 16(1&2).
Chishti, S. U. (1985). Relative Stability of Interest-free Economy الاستقرار النسبي في اقتصاد لاربوي. Journal of Research in Islamic Economics, King Abdulaziz University. Islamic Economics Institute, 3(1), 3-12.
Čihák, M., & Hesse, H. (2008). Islamic Banks and Financial Stability: An Empirical Analysis.IMF Working Paper WP/08. International Monetary Fund. Monetary and Capital Markets Department. Washington, 1-29.
Crockett, A. (1997). Why Is Financial Stability a Goal of Public Policy ?. Economic Review. Federal Reserve Bank Of Kansas City, 82(4), 5-22.
de la Banque, S. F. D. Centrale des Etats de llAfrique de llOuest (BCEAO), Dispositif Institutionnel (2006).
Faouzi, A., & Houhou, S. (2008). Un modele d'alerte precoce de difficultes bancaires pour les pays émergents. Economie Internationale, 114, 69-92.
Ferguson, R.W. (2002). Should Financial Stability Be An Explicit Central Bank Objective?. Paper presented at the Conference at the IMF in Washington, D.C.
Fisher, I. (1936). 100% Money and The Public Debt. New York: Adelphi Company
Foot, M. (2003). What is Financial Stability and How Do We Get It?.The Roy Bridge Memorial Lecture. Financial Services Authority. April.
Grier, W. A. (2012). Credit Analysis of FinancialInstitutions (3rd ed.). Euromoney Institutional Investor PLC: Playhouse Yard
Gunsel, N. (2007). Financial Ratios and the Probabilistic Prediction of Bank Failure in North Cyprus. European Journal of Scientific Research, 18(2), 191-200.
Hays, F., Lurgio, S., & Gilbert, A. (2008). Efficiency Ratios and Community Bank Performance. Journal of Finance and Accountancy, 5(2), 1-15.
Hilbers, P., Krueger, R., & Moretti, M. (2000). De nouveaux outils pour évaluer la santé du système financier. Finances & Développement, 53-55. Retrieved from https://www.imf.org/external/pubs/ft/fandd/fre/2000/09/pdf/hilbers.pdf
International Monetary Fund. (2006). Financial Soundness Indicators : Compilation Guide. Publication Services. Washington.
Mansour, N., & Zouari, E. (2018). Banking Interaction And Financial Stability: MENA Countries. Global Journal of Management and Business Research: C Finance, 18 (8), 11-24.
Minsky, H. (1986). Stabilizing an Unstable Economy: A Twentieth Century Fund Report (1st ed.). New Haven and London: Yale University Press.
Mishkin, F. S. (1997). The Causes and Propagation of Financial Instability: Lessons for Policymakers. Proceedings- Economic Policy Symposium- Jackson Hole. Federal Reserve Bank Of Kansas City. 55-96.
Mohamad, S., Hassan, T., & Bader, M. K. I. (2008). Efficiency of conventional versus Islamic banks: international evidence using the stochastic frontier approach (SFA). Journal of Islamic Economics, Banking and Finance, 4,107–130.
Ouerghi, F. (2014). Are Islamic Banks More Resilient To Global Financial Crisis Than Conventional Banks ?. Asian Economic and Financial Review, 4(7), 941-955.
Padoa-Schioppa, T. (2003). Central Banks And Financial Stability : Exploring a Land in Between, The Transformation of The European Financial System. Paper presented at the Central Banking Conference. Frankfurt. Retrieved from https://www.ecb.europa.eu/events/pdf/conferences/tps.pdf
Pappas, V., Ongena, S., Izzeldin, M., & Fuertes, A. (2017). A Survival Analysis of Islamic and Conventional Banks. Journal of Financial Services Research, 51(2), 221-256.
Parashar, S. P., & Venkatesh, J. (2010). How did Islamic banks do during global financial crisis?. Banks and Bank Systems, 5(4), 54-62.
Patat, J. P. (2000). La stabilité financière, nouvelle urgence pour les banques centrales. Bulletin de la Banque de France n°84. Décembre, 49-61.
Sakti, M. R. P., & Mohamad, A. (2018). Efficiency, stability and asset quality of Islamic vis-à-vis conventional banks. Journal of Islamic Accounting and Business Research, 9(3), 378–400.
Roman, A., & Şargu, A. (2013). Analysing the Financial Soundness of the Commercial Banks in Romania: An Approach Based on the Camels Framework. Procedia Economics and Finance, 6, 703-712.
Salman, S. A. (2007). Financial Distress And Bank Failure: Lessons From Closure Of Ihlas Finans In Turkey. Islamic Economic Studies. The Islamic Research and Training Institute (IRTI), 14 (1&2), 2-52.
Samad, A. (1999). Comparative efficiency of the Islamic bank vis-a`-vis conventional banks in Malaysia, IIUM Journal of Economics and Management, 7, 1–25.
Santomero, A. M., & Watson, R. D. (1977). Determining an Optimal Capital Standard for the Banking Industry. The Journal of Finance, 32(4), 1267-1282.
Schinasi, G. J. (2004). Defining Financial Stability.IMF Working Papers 04/187. International Monetary Fund.
Shahid, M. A. (2012). Financial stability of Islamic banking in Pakistan: An empirical study. African Journal of Business Management, 6(10), 3706- 3714.
Simons, H. C. (1948). Economic Policy for a Free Society .Chicago (IL): University of Chicago Press.
Srairi, S. A. (2010). Cost and profit efficiency of conventional and Islamic banks in GCC countries. Journal of Productivity Analysis, 34(1), 45–62.
Tayyebi, A. (2009). Eclipse by the Crescent Moon: Islamic Finance provides some light in the Global Financial Crisis. Financial Services Review, ACCA Global, June.
Uyen, D. (2011). The CAMEL rating system in banking supervision. A case study (Thesis, Arcada University of Applied Sciences International Business). Retrieved from https://www.theseus.fi/bitstream/handle/10024/38344/Dang_Uyen.pdf
Wahid, M. A., & Dar, H. (2016). Stability of Islamic versus Conventional Banks: A Malaysian Case. Jurnal Ekonomi Malaysia, 50(1), 111 –132
Youssef, M. H. (2017). Financial stability of Islamic and conventional banks (Master Thesis). Retrieved from http://lup.lub.lu.se/student-papers/record/8912576
Zainol, Z., & Kassim, S. H. (2012). A critical review of the literature on the rate of return risk in Islamic banks. Journal of Islamic Accounting and Business Research, 3(2), 121–137.
Alhassan, A. L., Kyereboah-Coleman, A., & Andoh, C. (2014). Asset quality in a crisis period: An empirical examination of Ghanaian banks. Review of Development Finance, 4(1),50–62.
Al-Jarrah, I., & Molyneux, P. (2005). Efficiency in Arabian banking. In M. Iqbal, & R. Wilson (Eds.), Islamic Perspectives on Wealth Creation (pp. 25-43). Edinburgh University Press: Edinburgh.
Alqahtani, F., & Mayes, D. G. (2018). Financial stability of Islamic banking and the global financial crisis: Evidence from the Gulf Cooperation Council. Economic Systems, 42(2), 346–360.
Askari, H., & Krichene, N. (2014). Islamic Finance: An Alternative Financial System for Stability, Equity, and Growth. PSL Quarterly Review,67(268), 9-54.
Balteş, N., Rodean, C., & Daciana, M. (2014). Study regarding the Financial stability of commercial banks listed on Bucharest Stock Exchange of CAMELS rating outlook. Journal of International Studies, 7(3), 133-143.
Bank Negara Malaysia. (n.d.). The Importance of Financial Stability. Retrieved from: https://www.bnm.gov.my/index.php?ch=fs&pg=fs_ovr_imp&ac=114
Bank of Korea. (n.d.). Why is Financial Stability Important?. Retrieved from: https://www.bok.or.kr/eng/main/contents.do?menuNo=400037
Beck, T., Demirgüç-Kunt, A., & Merrouche, O. (2010). Islamic vs. Conventional Banking: Business Model, Efficiency and Stability. Policy Research Working Paper 5446.
Bourkhis, K., & Nabi, M. S. (2013). Islamic and conventional banks' soundness during the 2007–2008 financial crisis. Review of Financial Economics, 22(2), 68-77.
Chant, J., Lai, A., Illing, M., & Fred, D. (2003). Essays on Financial Stability. Technical Report N°95. Bank of Canada, 1-111.
Chapra, M. U. (2009). Ethics and Economics: An Islamic Perspective. Islamic Economic Studies, 16(1&2).
Chishti, S. U. (1985). Relative Stability of Interest-free Economy الاستقرار النسبي في اقتصاد لاربوي. Journal of Research in Islamic Economics, King Abdulaziz University. Islamic Economics Institute, 3(1), 3-12.
Čihák, M., & Hesse, H. (2008). Islamic Banks and Financial Stability: An Empirical Analysis.IMF Working Paper WP/08. International Monetary Fund. Monetary and Capital Markets Department. Washington, 1-29.
Crockett, A. (1997). Why Is Financial Stability a Goal of Public Policy ?. Economic Review. Federal Reserve Bank Of Kansas City, 82(4), 5-22.
de la Banque, S. F. D. Centrale des Etats de llAfrique de llOuest (BCEAO), Dispositif Institutionnel (2006).
Faouzi, A., & Houhou, S. (2008). Un modele d'alerte precoce de difficultes bancaires pour les pays émergents. Economie Internationale, 114, 69-92.
Ferguson, R.W. (2002). Should Financial Stability Be An Explicit Central Bank Objective?. Paper presented at the Conference at the IMF in Washington, D.C.
Fisher, I. (1936). 100% Money and The Public Debt. New York: Adelphi Company
Foot, M. (2003). What is Financial Stability and How Do We Get It?.The Roy Bridge Memorial Lecture. Financial Services Authority. April.
Grier, W. A. (2012). Credit Analysis of FinancialInstitutions (3rd ed.). Euromoney Institutional Investor PLC: Playhouse Yard
Gunsel, N. (2007). Financial Ratios and the Probabilistic Prediction of Bank Failure in North Cyprus. European Journal of Scientific Research, 18(2), 191-200.
Hays, F., Lurgio, S., & Gilbert, A. (2008). Efficiency Ratios and Community Bank Performance. Journal of Finance and Accountancy, 5(2), 1-15.
Hilbers, P., Krueger, R., & Moretti, M. (2000). De nouveaux outils pour évaluer la santé du système financier. Finances & Développement, 53-55. Retrieved from https://www.imf.org/external/pubs/ft/fandd/fre/2000/09/pdf/hilbers.pdf
International Monetary Fund. (2006). Financial Soundness Indicators : Compilation Guide. Publication Services. Washington.
Mansour, N., & Zouari, E. (2018). Banking Interaction And Financial Stability: MENA Countries. Global Journal of Management and Business Research: C Finance, 18 (8), 11-24.
Minsky, H. (1986). Stabilizing an Unstable Economy: A Twentieth Century Fund Report (1st ed.). New Haven and London: Yale University Press.
Mishkin, F. S. (1997). The Causes and Propagation of Financial Instability: Lessons for Policymakers. Proceedings- Economic Policy Symposium- Jackson Hole. Federal Reserve Bank Of Kansas City. 55-96.
Mohamad, S., Hassan, T., & Bader, M. K. I. (2008). Efficiency of conventional versus Islamic banks: international evidence using the stochastic frontier approach (SFA). Journal of Islamic Economics, Banking and Finance, 4,107–130.
Ouerghi, F. (2014). Are Islamic Banks More Resilient To Global Financial Crisis Than Conventional Banks ?. Asian Economic and Financial Review, 4(7), 941-955.
Padoa-Schioppa, T. (2003). Central Banks And Financial Stability : Exploring a Land in Between, The Transformation of The European Financial System. Paper presented at the Central Banking Conference. Frankfurt. Retrieved from https://www.ecb.europa.eu/events/pdf/conferences/tps.pdf
Pappas, V., Ongena, S., Izzeldin, M., & Fuertes, A. (2017). A Survival Analysis of Islamic and Conventional Banks. Journal of Financial Services Research, 51(2), 221-256.
Parashar, S. P., & Venkatesh, J. (2010). How did Islamic banks do during global financial crisis?. Banks and Bank Systems, 5(4), 54-62.
Patat, J. P. (2000). La stabilité financière, nouvelle urgence pour les banques centrales. Bulletin de la Banque de France n°84. Décembre, 49-61.
Sakti, M. R. P., & Mohamad, A. (2018). Efficiency, stability and asset quality of Islamic vis-à-vis conventional banks. Journal of Islamic Accounting and Business Research, 9(3), 378–400.
Roman, A., & Şargu, A. (2013). Analysing the Financial Soundness of the Commercial Banks in Romania: An Approach Based on the Camels Framework. Procedia Economics and Finance, 6, 703-712.
Salman, S. A. (2007). Financial Distress And Bank Failure: Lessons From Closure Of Ihlas Finans In Turkey. Islamic Economic Studies. The Islamic Research and Training Institute (IRTI), 14 (1&2), 2-52.
Samad, A. (1999). Comparative efficiency of the Islamic bank vis-a`-vis conventional banks in Malaysia, IIUM Journal of Economics and Management, 7, 1–25.
Santomero, A. M., & Watson, R. D. (1977). Determining an Optimal Capital Standard for the Banking Industry. The Journal of Finance, 32(4), 1267-1282.
Schinasi, G. J. (2004). Defining Financial Stability.IMF Working Papers 04/187. International Monetary Fund.
Shahid, M. A. (2012). Financial stability of Islamic banking in Pakistan: An empirical study. African Journal of Business Management, 6(10), 3706- 3714.
Simons, H. C. (1948). Economic Policy for a Free Society .Chicago (IL): University of Chicago Press.
Srairi, S. A. (2010). Cost and profit efficiency of conventional and Islamic banks in GCC countries. Journal of Productivity Analysis, 34(1), 45–62.
Tayyebi, A. (2009). Eclipse by the Crescent Moon: Islamic Finance provides some light in the Global Financial Crisis. Financial Services Review, ACCA Global, June.
Uyen, D. (2011). The CAMEL rating system in banking supervision. A case study (Thesis, Arcada University of Applied Sciences International Business). Retrieved from https://www.theseus.fi/bitstream/handle/10024/38344/Dang_Uyen.pdf
Wahid, M. A., & Dar, H. (2016). Stability of Islamic versus Conventional Banks: A Malaysian Case. Jurnal Ekonomi Malaysia, 50(1), 111 –132
Youssef, M. H. (2017). Financial stability of Islamic and conventional banks (Master Thesis). Retrieved from http://lup.lub.lu.se/student-papers/record/8912576
Zainol, Z., & Kassim, S. H. (2012). A critical review of the literature on the rate of return risk in Islamic banks. Journal of Islamic Accounting and Business Research, 3(2), 121–137.
Published
2020-09-27
How to Cite
Fadoua, J., & Brahim, D. (2020). Financial Stability of Islamic and Conventional Banks of the MENA Region: Post and Pre-Crisis of CAMELS Framework. International Journal of Islamic Banking and Finance Research, 4(2), 38-48. https://doi.org/10.46281/ijibfr.v4i2.784
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2020 Joudar Fadoua, Dinar Brahim
This work is licensed under a Creative Commons Attribution 4.0 International License.
