FINANCIAL STABILITY OF ISLAMIC AND CONVENTIONAL BANKS IN BANGLADESH: REVISITING STABILITY MEASURES AND ANALYZING STABILITY BEHAVIOR

  • Md Enayet Hossain Department of Finance & Market Analyst, Credence Asset Management Limited. https://orcid.org/0000-0001-5637-2231
  • Mahmood Osman Imam Department of Finance, University of Dhaka, Bangladesh
Keywords: Financial Stability, Financial Stability Measures, Z Scores, Z Scores based on CAR, Z Scores based on IR, Islamic Banking

Abstract

This study intends to assess the relative financial stability of Islamic banks in Bangladesh using three different Z-Scores as financial stability measures, based on a sample of 29 listed commercial banks (23 conventional and 6 Islamic) in Bangladesh over the period 2005-2016. Apart from the existing measure of financial stability, Z-Score, the paper contributes to the literature by developing an alternative Z-Score based on bank’s loan portfolio infection ratio. We first use pair-wise comparison and find that Islamic banks are financially more stable in two stability measures i.e. Z-Score (based on Capital Adequacy Ratio) and Z-Score (based on Infection Ratio). We then perform static (random effects) and dynamic (GMM) panel data analysis. By controlling for bank-specific, industry-specific and macroeconomic variables in the regressions, we find that Islamic banks are financially more stable in 2 panel regressions of Z-Score (based on Infection Ratio). We also find that the presence of Islamic banks increases the stability of all banks in the system including their conventional peers.

Author Biographies

Md Enayet Hossain, Department of Finance & Market Analyst, Credence Asset Management Limited.

Research Associate, Department of Finance & Market Analyst, Credence Asset Management Limited.

Mahmood Osman Imam, Department of Finance, University of Dhaka, Bangladesh

Professor of Finance, Department of Finance, University of Dhaka, Bangladesh

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Published
2018-03-28
How to Cite
Hossain, M. E., & Imam, M. (2018). FINANCIAL STABILITY OF ISLAMIC AND CONVENTIONAL BANKS IN BANGLADESH: REVISITING STABILITY MEASURES AND ANALYZING STABILITY BEHAVIOR. Journal of Islamic Monetary Economics and Finance, 3(2), 293 - 314. https://doi.org/10.21098/jimf.v3i2.893
Section
Articles