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Working Paper – Arab Planning Institute

Do Islamic Banks Perform Better than Conventional Banks? Evidence from Gulf Cooperation Council countries

Do Islamic Banks Perform Better than Conventional Banks

Author: Hadeel Abu Loghod
Series: API/WPS 1011
Publisher: Arab planning institute – Kuwait
Description: Islamic Banking has been growing worldwide significantly in the past three decades and is developing remarkably in the Southeast Asia, Middle East and even in Europe and in North America. The Gulf Cooperation Council Countries (GCC), have dual banking system where Islamic and conventional banks are operating side by side. The purpose of this paper is to compare the financial performance (profitability, liquidity and structure) of the two banking styles over the 2000-2005 time period. Among other findings the empirical results show no significant differences in terms of profitability. However, Islamic banks are less exposed to liquidity risk. On the other hand, conventional banks depend more on external liabilities than Islamic banks. Naturally, GCC markets showed that customers were more attracted to use financial instruments offered by Islamic banks. Finally, no statistical significant differences were found on internal growth rate for both types of banking, which implies that this largely depends on the management style and the general performance of the specific bank.

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