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Volume :47 Issue : 182 2021      Add To Cart                                                                    Download

Comparing the Performance and Risk of Conventional and Islamic GCC Banks

Auther : Dr. Turki B. Alshammari


Objectives: This study aims at investigating differences in performance and risk of both conventional and Islamic banks in the Gulf Cooperation Council (GCC) countries (Kuwait, KSA, Bahrain, Qatar, UAE, and Oman) during the period of 2012-2018.
Method: This study employs two main types of statistical techniques. One relates to finding statistical differences in performance and risk of all GCC banks (Islamic and conventional), and the other method relates to using the ordinary least squares (OLS) as well as the generalized method of moments GMM, that takes into account some statistical measures that the OLS lacks. As a sample, the study took all GCC working banks (both conventional and Islamic) in Kuwait, KSA, Bahrain, Qatar, UAE, and Oman during the period 2012 - 2018. In order to achieve the study objective, the financial data used to measure the performance were the return on asset ROA and the return on equity ROE. The study also employed two types of banking risk measures so as to confirm the validity of the results.
Results: The study finds that unlike what is declared by a lot of banking industry-interested, profitability in conventional GCC banks exceeds the one of their Islamic counterparts with a high significance of (less than 1% in ANOVA test). Results also revealed that risks of Islamic banks are significantly higher than of their conventional ones (less than 1%). Moreover, the statistical analysis showed that the most important factors that influence banking risks for both banking systems are bank capital, bank size, loan volume (and profitability only in Islamic banks). And these results partially differ according to the statistical method used.
Conclusion: The study revealed that GCC conventional banks outperformed the Islamic banks in terms of profitability, and that the banking risks of GCC Islamic banks are significantly higher than that of the conventional banks.

Keywords: ROA, ROE, Bank capital, Banking risks.

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