Bank lending,deposits and risk-taking in times of crisis: A panel analysis of Islamic and conventional banks |
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| Institution: | 1. School of Graduate Studies, International Centre for Education in Islamic Finance (INCEIF), Lorong Universiti A, 59100 Kuala Lumpur, Malaysia;2. Suleman Dawood School of Business, Lahore University of Management Sciences (LUMS), Opp Sector U, DHA IV, Lahore, Pakistan;1. Charles Darwin University Business School, Charles Darwin University, Australia;2. Department of Accounting Finance and Economics, Griffith Business School, Griffith University, Australia;1. Central Bank of the Republic of Turkey, Turkey;2. Ghent University, Belgium;3. Nottingham University, England, United Kingdom;1. Department of Finance, John Molson School of Business, Concordia University, 1455 Blvd. de Maisonneuve West, Montréal, QC H3G 1M8, Canada;2. Department of Economics and Finance, University of New Orleans, New Orleans, LA 70148, USA;3. College of Business and Public Management, University of La Verne, 1950 Third St., La Verne, CA 91750, USA |
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| Abstract: | In this study, we conduct a panel analysis of Islamic and conventional banks to ascertain whether Islamic banks are able to sustain financing supply and whether its growth is higher than conventional bank lending growth in times of stress. For concreteness, we also assess whether the sustained financing supply of Islamic banks is justified by a concomitant increase in Islamic deposit growth and is not linked to excessive risk taking. Utilizing a panel sample of 25 Islamic banks and 114 conventional banks from 10 dual-banking countries, we observe sustained financing supply by Islamic banks but significant reduction in the lending growth by conventional banks during the crisis period. The results further suggest that the financing growth of Islamic banks is higher than the lending growth of conventional banks during the crisis period. However, we find no clear evidence that the deposit growth of Islamic banks behaves differently during the period. Finally, there is no indication to suggest that Islamic banks exhibit excessive risk taking in times of stress. Our results contribute to the evidence supporting the contributive role of the Islamic banking system to financial and economic stability. |
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