Islamic Banks and Financial Stability: An Empirical Analysis

Author/Editor:

Martin Cihak ; Heiko Hesse

Publication Date:

January 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The relative financial strength of Islamic banks is assessed empirically based on evidence covering individual Islamic and commercial banks in 18 banking systems with a substantial presence of Islamic banking. We find that (i) small Islamic banks tend to be financially stronger than small commercial banks; (ii) large commercial banks tend to be financially stronger than large Islamic banks; and (iii) small Islamic banks tend to be financially stronger than large Islamic banks, which may reflect challenges of credit risk management in large Islamic banks. We also find that the market share of Islamic banks does not have a significant impact on the financial strength of other banks.

Series:

Working Paper No. 2008/016

Subject:

Banking Commercial banks Financial sector stability Islamic banking Personal income

English

Publication Date:

January 1, 2008

ISBN/ISSN:

9781451868784/1018-5941

Stock No:

WPIEA2008016

Pages:

29

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