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Comparing Efficiency, Asset Quality, and Liquidity between Islamic and Conventional Banks
Abstract
Purpose – This research aims to examine efficiency, asset quality, and liquidity by comparing a sample of 52 Islamic banks and 48 conventional banks in 21 countries.
Methodology – This study employs an unbalanced panel from 2005 to 2020, the analysis employs the Generalized Method of Moments (GMM).
Findings -The findings show that conventional banks have a more stable credit base than Islamic banks. But, in terms of cost relative to revenue, Islamic banks are more efficient. The results indicate that both banks face lower short-term liquidity risk. The study unveils that both Islamic and conventional banks are sensitive to shocks during the recent financial crisis and the COVID-19 pandemic. Despite greater volatility, Islamic banks demonstrate relative financial resilience, which likely may be attributed to their asset-backed financing models and ethical principles.
Implication - These insights suggest that policymakers and financial institutions should develop Shariah-compliant liquidity instruments and strengthen regulatory frameworks to enhance the resilience of Islamic banks during economic disruptions.
Keywords
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DOI: https://doi.org/10.17509/rief.v8i2.77676
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