Browse > Article
http://dx.doi.org/10.13106/jafeb.2022.vol9.no2.0001

Impacts of Bank-Specific and Macroeconomic Risks on Growth and Stability of Islamic and Conventional Banks: An Empirical Analysis from Pakistan  

REHMAN, Jamshid ur (School of Islamic Banking & Finance, International Islamic University)
RASHID, Abdul (International Institute of Islamic Economics, International Islamic University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.9, no.2, 2022 , pp. 1-14 More about this Journal
Abstract
The implications of bank-specific risks and macroeconomic risks on the growth, profitability, and stability of Islamic and conventional banks are examined and compared in this article. The study also investigates whether corporate governance mitigates the effects of both bank-specific and macroeconomic risks on Islamic and conventional banks' development, profitability, and stability. For the period 2007-2019, we examined a panel data set of 22 banks in Pakistan, including both Islamic and conventional banks. We discovered considerable evidence that both bank-specific risks and macroeconomic risks have negative effects on the growth, profitability, and stability of Pakistani banks using a dynamic panel data estimator, the two-step Generalized Method of Moments (GMM) approach. Furthermore, the findings show that bank-specific and macroeconomic risks have different consequences in both types of banking. The impacts of liquidity risk, operational risk, capital risk, inflation risk, and exchange rate risk are higher for Islamic banks than for conventional banks. Conventional banks, on the other hand, are more vulnerable to credit risk and interest rate risk. Finally, the findings show that good corporate governance reduces the negative consequences of both categories of risks on bank development, profitability, and stability. This is true for Islamic and conventional banks alike.
Keywords
Bank-specific Risks; Macroeconomic Risks; Growth; Profitability; Stability; Corporate Governance;
Citations & Related Records
Times Cited By KSCI : 3  (Citation Analysis)
연도 인용수 순위
1 Talbi, D., & Bougatef, K. (2018). The internal and external determinants of the intermediation margin of banks across MENA countries. EuroMed Journal of Business, 13(3), 280-290. https://doi.org/10.1108/EMJB-02-2018-0013   DOI
2 Zainol, Z., & Kassim, S. H. (2012). A critical review of the literature on the rate of return risk in Islamic banks. Journal of Islamic Accounting and Business Research, 3(2), 121-137. https://doi.org/10.1108/17590811211265948   DOI
3 Permatasari, I. (2020). Does corporate governance affect bank risk management? Case study of Indonesian banks. International Trade, Politics and Development. 4(2), 127-139. https://doi.org/10.1108/ITPD-05-2020-0063   DOI
4 Puspitasari, D. M., Febrian, E., Anwar, M., Sudarsono, R., & Napitupulu, S. (2021). Determinants of default risks and risk management: evidence from rural banks in Indonesia. The Journal of Asian Finance, Economics and Business, 8(8), 497-502. https://doi.org/10.13106/jafeb.2021.vol8.no8.0497   DOI
5 Ramlall, I. (2018). A framework for financial stability risk assessment in banks. Bingley: Emerald Publishing Limited.
6 Rashid, A., & Jabeen, S. (2016). Analyzing performance determinants: Conventional versus Islamic banks in Pakistan. Borsa Istanbul Review, 16(2), 92-107. https://doi.org/10.1016/j.bir.2016.03.002   DOI
7 Srairi, S. A. (2009). Cost and profit efficiency of conventional and Islamic banks in GCC countries. Journal of Productivity Analysis, 34(1), 45-62. https://doi.org/10.1007/s11123-009-0161-7   DOI
8 Tabari, N. A. Y., Ahmadi, M., & Emami, M. (2013). The effect of liquidity risk on the performance of commercial banks. International Research Journal of Applied and Basic Sciences, 4(6), 1624-1631. https://irjabs.com/files_site/paperlist/r_880_130522175304.pdf
9 Rustam, A. R., & Narsa, I. (2021). Good corporate governance: A case study of a family business in Indonesia. The Journal of Asian Finance, Economics and Business, 8(5), 69-79. https://doi.org/10.13106/jafeb.2021.vol8.no5.0069   DOI
10 Solarin, S. A., Hammoudeh, S., & Shahbaz, M. (2018). Influence of economic factors on disaggregated Islamic Banking Deposits: Evidence with structural breaks in Malaysia. Journal of International Financial Markets, Institutions, and Money, 55, 13-28. https://doi.org/10.1016/j.intfin.2018.02.007   DOI
11 Ghenimi, A., Chaibi, H., & Omri, M. A. B. (2017). The effects of liquidity risk and credit risk on bank stability: Evidence from the MENA region. Borsa Istanbul Review, 17(4), 238-248. https://doi.org/10.1016/j.bir.2017.05.002   DOI
12 Cornett, M. M., McNutt, J. J., & Tehranian, H. (2010). The financial crisis, internal corporate governance, and the performance of publicly traded US bank holding companies. SSRN Journal, 1(1), 56-73. https://doi.org/10.1.1.614.6381   DOI
13 Alsyahrin, D. P., Atahau, A. D. R., & Robiyanto, R. (2018). The effect of liquidity risk, financing risk, and operational risk toward Indonesian Shariah bank's financing with bank size as a moderating variable. Journal of Economics, Business and Accountancy Ventura, 21(2), 241-249. https://doi.org/10.14414/JEBAV.V21I2.1181   DOI
14 Al-Tamimi, H. A. H., Miniaoui, H., & Elkelish, W. W. (2015). Financial risk and Islamic banks' performance in the Gulf Cooperation Council Countries. The International Journal of Business and Finance Research, 9(5), 103-112. http://www.theibfr2.com/RePEc/ibf/ijbfre/ijbfr-v9n5-2015/IJBFRV9N5-2015-9.pdf
15 Ballester, L., Gonzalez-Urteaga, A., & Martinez, B. (2020). The role of internal corporate governance mechanisms on default risk: A systematic review for different institutional settings. Research in International Business and Finance, 54, 01-29. https://doi.org/10.1016/j.ribaf.2020.101293   DOI
16 Dao, B. T. T., & Nguyen, D. P. (2020). Determinants of profitability in commercial banks in Vietnam, Malaysia and Thailand. The Journal of Asian Finance, Economics, and Business, 7(4), 133-143. https://doi.org/10.13106/jafeb.2020.vol7.no4.133   DOI
17 Zagorchev, A., & Gao, L. (2015). Corporate governance and performance of financial institutions. Journal of Economics and Business, 82(1), 17-41. https://doi.org/10.1016/j.jeconbus.2015.04.004   DOI
18 Haque. I., & Wani, A. A. (2015). Relevance of financial risk with financial performance: An insight of Indian banking sector. Pacific Business Review International, 8(5), 54-64. http://oaji.net/articles/2016/3050-1456204305.pdf
19 Rashid, A., & Khalid, S. (2017). Impacts of inflation and interest rate uncertainty on performance and solvency of conventional and Islamic banks in Pakistan. Journal of Islamic Business and Management, 7(2), 156-177. https://doi.org/10.26501/jibm/2017.0702-002   DOI
20 Shair, F., Sun, N., Shaorong, S., Atta, F., & Hussain, M. (2019). Impacts of risk and competition on the profitability of banks: Empirical evidence from Pakistan. PLoS ONE, 14(11), 1-27. https://doi.org/10.1371/journal.pone.0224378   DOI
21 Maurya, N. N., Sharma, R. S., Aljebori, S. T. H., Maurya, A. K., & Arora, D. K. (2015). Correlation analysis between the corporate governance and financial performance of banking sectors using parameter estimation. American Journal of Theoretical and Applied Statistics, 4(2-1), 27-32. https://doi.org/10.11648/j.ajtas.s.2015040201.14   DOI
22 Hassan, M. K., Khan, A., & Paltrinieri, A. (2019). Liquidity risk, credit risk, and stability in Islamic and conventional banks. Research in International Business and Finance, 48, 17-31. https://doi.org/10.1016/j.ribaf.2018.10.006   DOI
23 James-Overheu, C., & Cotter, J. (2009). Corporate governance and sustainability disclosures and the assessment of default risk. Asian Journal of Finance & Accounting, 1(1), 34-53. https://doi.org/10.1111/j.1467-8683.2007.00657.x   DOI
24 Kabir, M. N., Worthington, A., & Gupta, R. (2015). Comparative credit risk in Islamic and conventional banks. Pacific-Basin Finance Journal, 34, 327-353. https://doi.org/10.1016/j.pacfin.2015.06.001   DOI
25 Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H., & Almaqtari, F. A. (2018). Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach. Cogent Economics and Finance, 6(1), 1-26. https://doi.org/10.1080/23322039.2018.1548072   DOI
26 Tai, L. (2015). The impact of corporate governance on the efficiency and financial performance of GCC national banks. Middle East Journal of Business, 10(1), 12-16. https://doi.org/10.2139/ssrn.2657587   DOI
27 Ali, M., & Puah, C. H. (2018). The internal determinants of bank profitability and stability. An insight from the banking sector of Pakistan. Management Research Review, 42(1), 59-67. https://doi.org/10.1108/MRR-04-2017-0103   DOI
28 Ali, M., Sohail, A., Khan, L., & Puah, C. H. (2019). Exploring the role of risk and corruption on bank stability: Evidence from Pakistan. Journal of Money Laundering Control, 22(2), 270-288. https://doi.org/10.1108/JMLC-03-2018-0019   DOI
29 Chang, C. S., Yu, S. W., & Hung, C. H. (2015). Firm risk and performance: the role of corporate governance. Review of Managerial Science, 9(1), 141-173. https://doi.org/10.1007/S11846-014-0132-X   DOI
30 Peni, E., & Vahamaa, S. (2012). Did good corporate governance improve bank performance during the financial crisis? Journal of Financial Services Research, 41(1), 19-35. https://doi.org/10.1007/s10693-011-0108-9   DOI
31 Al-Gamrh, B., Ku Ismail, K. N. I., & Al-Dhamari, R. (2018). The role of corporate governance strength in crisis and non-crisis times. Applied Economics, 50(58), 6263-6284. https://doi.org/10.1080/00036846.2018.1489513   DOI
32 Al-Tamimi, K. A. M, & Obeidat, S. F. (2013). Determinants of capital adequacy in commercial banks of Jordan an empirical study. International Journal of Academic Research in Economics and management sciences, 2(4), 44-58. https://doi.org/10.1.1.677.2355   DOI
33 Obaidullah, M., (2005). Islamic financial services (1st ed.). Jeddah, Saudi Arabia: Scientific Publishing Center.
34 Al-Farooque, O., Van Zijl, T., Dunstan, K., & Karim, A. K. M. (2007). Corporate governance in Bangladesh: Link between ownership and financial performance. Corporate Governance: An International Review, 15(6), 1453-1468. https://doi.org/10.1111/j.1467-8683.2007.00657.x   DOI
35 Mousal, M., Judit, S., & Zeman, Z. (2018). The impact of credit and capital risk on the banking performance: Evidence from Syria. Journal of Management, 32(1), 107-112. https://www.ltvk.lt/file/zurnalai/12_14_Mousa.pdf
36 Mulyadi, M. S. (2018). Developing corporate governance in Myanmar-lessons learned from corporate governance development in Indonesia. International Journal of Business Excellence, 14(3), 414-425. https://doi.org/10.1504/IJBEX.2018.10010424   DOI