Comparison on Stability Between Islamic and Conventional Banks in Malaysia (original) (raw)
Islamic banks were relatively unaffected during the recent financial meltdown. This has raised the possibility that financial institutions, operating on Islamic principles are more stable compared to their conventional counterparts. This motivates us to undertake to examine relative stability between Islamic and conventional banks. Z-score and NPL are used as proxies for bank stability. Computation of Z-score and NPL suggest that on average Islamic banks are relatively more stable than their conventional counterparts. Standard panel data analysis suggests that factors affecting both Islamic and conventional banks stability are similar, except for the degree of diversification in income. Stability is not a function of income diversification for Islamic banks but it is in the case of conventional banks. This explained why during recent crisis, when various sources of bank income was adversely affected, Islamic banks remained stable as opposed to the conventional banks
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