Has the risk index of Islamic banks and conventional banks in GCC countries changed in response to the 2008 economic crisis

Abstract

In this empirical study, we investigate the effect of the 2008 economic crisis on the level of risks Islamic banks (IB) and conventional banks (CB) are facing and the determinants of their risk indices. We cover 20 banks operating in the Gulf Cooperation Council (GCC) countries during 2001-2014. The results indicate that while the state of the economy had no effect on the risk index (RI) of banks, the type of bank did have an effect. The results suggest that the RI of IB was significantly lower than that of CB before and after the crisis indicating higher risks for IB. While the RI of CB is explained by solvency and liquidity variables, the RI of IB is explained by liquidity and profitability variables. Discussions, interpretations of research results and implications are provided.