Cyclicality of bank credit growth: Conventional vs Islamic banks in the GCC

Albaity, Mohamed; Noman, Abu Hanifa Md.; Mallek, Ray Saadaoui; Al-Shboul, Mohammad

doi:10.1016/j.ecosys.2021.100884

Cited by 14 publications

(14 citation statements)

References 73 publications

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“…GDP growth rate per capita negatively influenced bank credit growth. This was in line with Ibrahim (2016) and Albaity et al (2021b). Higher economic growth may lead to lower bank lending because companies may find it easier to raise finance from other sources in boom times.…”

Section: Resultssupporting

confidence: 84%

“…This suggests that Shariah rules governing Islamic banks and the possible improved stability in deposit funding helped facilitate higher lending (Ibrahim, 2016;Farooq and Zaheer, 2015). Conversely, it can be argued that Islamic banks are successful due to captive customers in the GCC since most of the population is Muslim (Albaity et al, 2021b). Clients using Islamic banks as captive customers do so due to religious obligations rather than the banks' efficiency (Hasan and Dridi, 2011;Meslier et al, 2017).…”

Section: Trust and Country Governancementioning

confidence: 99%

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Do trust and country governance affect credit growth in GCC countries?

Albaity

Mallek

Al‐Tamimi

et al. 2022

IMEFM

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Purpose This study aims to investigate whether quality of governance (QoG), trustworthiness and confidence impacted bank credit growth in Gulf Cooperation Council (GCC). In addition, it examined whether credit growth differed between Islamic and conventional banks in GCC countries. Design/methodology/approach Using data from 104 (56 conventional banks and 48 Islamic banks) banks located in GCC countries from 2012 to 2019, the two-step system generalized method of moments estimator was used to analyse the data. Findings Evidence was found of the influence of trust in institutions in boosting credit growth. The QoG generally expanded credit growth which instilled confidence in the economy and the banking sector. Credit growth was more pronounced for Islamic banks. This paper has contributed to the literature evaluating the determinants of credit growth in GCC. Originality/value This paper has been one of the few studies exploring the effect of trustworthiness and confidence (informal institutions) and macro governance (formal institutions) in GCC. GCC is different from other regions, as it is oil-dependent and shares similar legal, social and cultural aspects. This suggested that these might yield different results than expected.

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Section: Resultssupporting

confidence: 84%

Section: Trust and Country Governancementioning

confidence: 99%

Do trust and country governance affect credit growth in GCC countries?

Albaity

Mallek

Al‐Tamimi

et al. 2022

IMEFM

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“…These results of the study conform to the works of Albaity et al (2022), and Dibooglu et al (2022) that credit risk is a multidimensional phenomenon that includes a country-wise dimension as well. Also, since Malaysian banking is greater in size, therefore the results in the case of Malaysia also conform to the results of Hasan et al (2023) that the credit risk of Islamic banks is a also a function of surveillance systems.…”

Section: Analysis Of Fintech Effectssupporting

confidence: 90%

“…The varying nature of credit risk depending upon before, during and after crisis; and preand post-disbursement have been the subject of a significant number of studies (Albaity et al, 2022;Dibooglu et al, 2022;Fianto et al, 2023;Koh et al, 2022;Mateev et al, 2022;Shah et al, 2021aShah et al, , 2021bShah et al, , 2021c. Studies have suggested that as Islamic banking is achieving larger scale, its risk and profit efficiencies are matching its conventional counterparts (Koh et al, 2022).…”

Section: Credit Risk Management In Islamic Banksmentioning

confidence: 99%

Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan

Shah

Fianto

Sheikh

et al. 2023

JSTPM

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Purpose The purpose of this study aims to examine the effect of fintech on pre- and post-financing credit risks faced by the Islamic banks. Design/methodology/approach This research uses primary data for fintech awareness and adoption and secondary data of various financial and economic variables from 2009 to 2021. It uses baseline regression to identify moderation of fintech controlling gross domestic products, size, return on assets and leverage. The findings are confirmed using robustness against key variable bias. It also uses a dynamic panel two-stage generalized method of moments for endogeneity. Findings The study finds that the fintech awareness and adoption are not the same across all Islamic countries. The Asia Pacific region is far ahead of the other two regions where Indonesia is ahead in terms of fintech awareness and adoption, and Malaysia is ahead in terms of reaping its benefits in credit risk management. Fintech affects prefinancing credit risk significantly more than postfinancing credit risk. Also, the study finds that Islamic banks suffer from the problem of “Adverse selection under Shariah compliance.” Practical implications This research invites regulators to introduce fintech in Islamic banks on war footing. Similar studies can be conducted on the role of other risks such as operational and market risks. Fintech will also help in improving the risk profile and stability of Islamic banks against systemic risks and financial crises. Originality/value This research has variety of originalities. First, it is the pioneering study that addresses the effect of fintech pre- and post-financing credit risks in Islamic banks. Second, it identifies “Adverse selection under Shariah compliance” for Islamic banks. Third, it helps identify how fintech can be useful in reducing credit risk that will help in reducing capital charge for regulatory capital.

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“…Kabir et al (2015) argue that some Islamic bank products that follow Shari'ah laws necessitate banks to take on additional risks. Albaity et al (2022) argue that due to Islamic banks' inability to monitor Mudaraba financed projects, information asymmetry induces additional risks for Islamic banks. Furthermore, the specialized nature of the Islamic contract introduces complexity in risk management and default resolution (Lassoued et al, 2018).…”

Section: Covid-19 Pandemic and Islamic Versus Conventional Banks: Imp...mentioning

confidence: 99%

Loan Portfolio Composition of Islamic and Conventional Banks Pre- And Post-Covid-19 Pandemic? Case of Indonesia

Ashraf

Rizwan

Adiwibowo

2022

JIMF

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This study investigates how the Covid-19 pandemic has affected the loan portfolio composition of Indonesian Islamic and conventional banks. By using a sample of 108 conventional and 9 Islamic banks, we find that conventional banks issued more consumption loans during the sample period. On the contrary, Islamic banks granted more investment loans than consumption loans. In addition, given limited support from the central bank, Islamic banks still increased their contribution to investment loans portfolio more rapidly during the COVID-19 pandemic. These results support the view that Islamic banks provide funding to long-term investment projects and may contribute more to sustainable economic growth. This finding could have policy implications for both Islamic banks and the government. Despite the fact that Islamic banking is in its infancy in Indonesia, it provides funding for the real economy. Regulators may assist the Islamic banking sector in developing risk management capacity in various sectors, including agriculture, manufacturing, trading, distribution, hotels, and restaurants. Furthermore, implementing a well-integrated policy framework that includes monetary, fiscal, and financial services can also assist in optimizing the momentum of economic recovery after the pandemic despite global supply disruptions, the Russian-Ukraine war, and climate change.

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Cyclicality of bank credit growth: Conventional vs Islamic banks in the GCC

Cited by 14 publications

References 73 publications

Do trust and country governance affect credit growth in GCC countries?

Do trust and country governance affect credit growth in GCC countries?

Role of fintech in credit risk management: an analysis of Islamic banks in Indonesia, Malaysia, UAE and Pakistan

Loan Portfolio Composition of Islamic and Conventional Banks Pre- And Post-Covid-19 Pandemic? Case of Indonesia

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