Comparative Analysis of Risks and Their Impacts on the Banking Stability of Islamic and Conventional Banks in the MENA Region

Abstract

This study aims to analyze and compare the impact of risks on banking stability associated with Islamic banks in comparison to their conventional counterparts in the MENA region. In this process, we first examine the correlation between liquidity risk and credit risk. Secondly, we assess whether these two types of risks are related to banking stability within both categories of banks. Using the PVAR (Panel Vector Auto Regression) econometric model on a sample of 110 conventional and Islamic banks in the MENA region, our results indicate that liquidity risk and credit risk exhibit a negative relationship in both types of banks. Furthermore, our findings suggest that there is no correlation between these risks and banking stability in both types of banks. Our conclusions have significant implications for banking institutions regarding the strategies and approaches required to manage these risks and ensure the stability of their banking operations.