Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

A Comparison of the Financial Performance of Islamic Vs Conventional Banks in the Mena Region

Author(s): Ahmed Mohammed Debes, Marim Alenezi, Mohamed El Baradie

Purpose: This paper compares the financial performance of Islamic and conventional banks in the Middle East and North Africa (MENA) region. Approach: The comparison is undertaken through examining the influence of bank specific factors and macroeconomic factors on banks’ financial performance using data obtained from Bankscope and Worldbank Databank for 108 banks comprising 35 Islamic banks and 73 conventional banks from 15 countries (Algeria, Bahrain, Egypt, Jordan, Iran, Iraq, Kuwait, Libya, Morocco, Oman, Saudi Arabia, Tunisia, Qatar, Yemen, United Arab of Emirates) for the period 2004-2014. Multivariate linear regression and non-linear Artificial Neural Network models are employed. Findings: The study found that only credit risk was not statistically significant between Islamic banks and conventional banks in the MENA region suggesting that credit risk management approaches might be similar in both banking types. In addition, the study showed evidence of increased capitalisation, but declining financial performance, of Islamic banks after the 2008 financial instability. Conventional banks performed relatively better than Islamic banks in this period despite high fluctuations. Further, the study suggests that conventional banks were affected relatively more than Islamic banks by the 2008 global financial crisis. Also, a comparison of the results obtained using the artificial neural network to those obtained using the multivariate regression analysis showed that overall, the explanatory power obtained using the artificial neural network was relatively higher suggesting superiority of the methodological approach. Originality/value: The paper contributes to the literature that shows that differences in operational models of banks have an effect on their financial performance.

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