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Does competition lead to financial stability or financial fragility for Islamic and conventional banks? Evidence from the GCC countries
Author(s) -
Albaity Mohamed,
Mallek Ray Saadaoui,
Hassan AlTamimi Hussein A.,
Noman Abu Hanifa Md.
Publication year - 2021
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.2037
Subject(s) - nexus (standard) , economics , financial fragility , competition (biology) , monetary economics , fragility , profitability index , financial stability , islam , financial system , financial crisis , finance , macroeconomics , ecology , philosophy , chemistry , theology , biology , computer science , embedded system
This paper investigates the nexus between stability and competition in the banking sector of the Gulf Cooperation Council. We examined a sample of 75 banks over the period 2006–2016. We found a U‐shaped relationship between bank stability and competition suggesting competition‐stability and competition‐fragility nexus. Banking concentration was found to affect instability negatively, which supported the “too important to be bailed out” view. Furthermore, we found that Islamic banks were less stable compared to conventional banks. We also found that bank size, profitability and capital regulation increase bank stability. In addition, the stock market return and the level of debt‐to‐GDP increase instability while the growth in oil price increase stability. Our findings are relevant to regulators to impose or release restrictions that boost financial stability.