Examining the Resilience of Islamic and Conventional Banks to Changes in Macroeconomic Conditions

Abstract

This paper aims to examine if there is any relationship between Islamic and conventional bank resilience to changes in economic conditions. To fulfill our objectives, first we provide a descriptive approach, in which we compare the credit risk evolution of 53 Islamic and 215 conventional banks operating in 10 countries from 2005 to 2015.  Then we adopted a regression analysis, to examine to what extent being Islamic does matter in determining (i) the level of a bank’s credit risk, and (ii) sensitivity to changes in macroeconomic conditions. Results reveal that being Islamic seems to not matter, neither in determining a bank’s credit risk level, nor a bank credit risk sensitivity. Both types of bank seem to respond similarly to changes in the macroeconomic context.