The impact of global financial crisis on conventional and Islamic banks in the GCC countries

• Author: Sameer Al‐Barghouthi,Abdalla Salih,Mahieddine Adnan Ghecham
• DOI: http://doi.org/10.1002/ijfe.1713
• Date: 01 July 2019
• Published date: 01 July 2019

RESEARCH ARTICLE

The impact of global financial crisis on conventional and

Islamic banks in the GCC countries

Abdalla Salih

1

| Mahieddine Adnan Ghecham

1

| Sameer Al‐Barghouthi

2

1

College of Business, Al Ain University of

Science and Technology, Abu Dhabi,

United Arab Emirates

2

College of Business, Al Falah University,

Dubai, United Arab Emirates

Correspondence

Mahieddine Adnan Ghecham, College of

Business, Al Ain University of Science and

Technology, Abu Dhabi, United Arab

Emirates.

Email: adnanghecham@hotmail.com

Abstract

Using large dataset from audited financial statements of 81 banks in the Gulf

Cooperation Council (GCC) region, this article aims at assessing the perfor-

mance of Islamic banks and conventional banks during the 2008 financial

crisis. Unlike major studies that explored this area of study in the GCC coun-

tries, this paper investigates the performance of both types of banks before,

during, and after the 2008 financial crisis, while covering four different finan-

cial performance measures, namely, efficiency, profitability, liquidity, and

solvency. Moreover, this investigation is undertaken while covering a larger

time span (2006–2012) than perhaps all similar works that covered similar

study on the GCC region. With the use of mixed‐effect linear regression, the

paper shows that, compared with Islamic banks, conventional banks have

sustained a better performance over the 2006–2012 period in relation to

efficiency and return on assets. In this context, the paper puts a note on the

shortcomings of the institutional arrangement of the Islamic banks that

impeded their performance during the crisis as well as on the active role of

GCC governments during the financial crash.

KEYWORDS

conventional banks, financial crisis, financial performance indicator, Islamic banks

1|INTRODUCTION

It is very common to hear in different settings the strong

resilience of Islamic banks as opposed to conventional

banks during financial crises. This has been particularly

more vocal in the context of 2008 financial crisis. The

superior performance of Islamic banks, during crises, is

almost taken for granted by a number of enthusiasts cit-

ing the advantages, which Sharia‐based banking business

model offers; the Islamic banks intermediation is asset

based and focuses on risk sharing not allowing invest-

ment in type of financial products that instigate the kind

global financial crisis like the one the world has experi-

enced in 2008.

However, the work of recent studies (e.g., Beck,

Demirgüç‐Kunt, & Merrouche, 2013; Johnes, Izzeldin, &

Pappas, 2014; Olson & Zoubi, 2017) appeals for more

careful acceptance of the superiority of the Islamic banks

performance during financial crisis.

Therefore, this work endeavours to follow this stream

of investigation and question the resilience of Islamic

banks in the GCC region during the global financial

crisis. Unlike most of the studies in the area, our work

contributes in this type of investigation while using a

more comprehensive number of financial performance

indicators, which are liquidity, solvency, profitability,

and efficiency. This is done while covering a substantial

sample of Islamic and conventional banks operating in

Received: 13 February 2018 Revised: 8 July 2018 Accepted: 9 September 2018

DOI: 10.1002/ijfe.1713

Int J Fin Econ. 2019;24:1225–1237. © 2018 John Wiley & Sons, Ltd.wileyonlinelibrary.com/journal/ijfe 1225