Global Banking Performance in the Time of COVID-19: Impact on Commercial and Islamic Banks

Bashar Abdallah; Francisco Rodríguez-Fernández

doi:10.1561/114.00000045

journal article Jul 26, 2023

Global Banking Performance in the Time of COVID-19: Impact on Commercial and Islamic Banks

Bashar Abdallah Francisco Rodríguez-Fernández

Review of Corporate Finance Vol. 3 No. 3 pp. 389-416 · Emerald

View at Publisher Save 10.1561/114.00000045

Abstract

While some studies have documented differences in the performance of commercial and Islamic banks, we wonder whether these disparities make one banking model more resilient than the other in the face of an unpredicted shock. We examine the impact of the COVID-19 outbreak on banking performance and financial stability in both commercial and Islamic banks, as well as the determinants of their respective differences in performance. We find that while both types of banks experienced a reduction in stock market performance during the pandemic, the returns for Islamic banks were 11%–13% higher than those of commercial banks. In contrast, commercial banks performed better during the pre-COVID-19 period, as well as in the early recovery period. Additionally, banks that relied more heavily on non-traditional banking activities exhibited higher liquidity, lower insolvency and market risk and better stock market performance during the pandemic. Islamic banks were better capitalized than their commercial counterparts, relied more on long-term funding, were more involved in non-traditional banking loan businesses and were more profitable. Commercial banks performed better in terms of efficiency and had higher asset quality along with a lower risk of insolvency.

Topics

No keywords indexed for this article. Browse by subject →

References

31

[1]

Risk management, corporate governance, and bank performance in the financial crisis

Vincent Aebi, Gabriele Sabato, Markus Schmid

Journal of Banking & Finance 2012 10.1016/j.jbankfin.2011.10.020

[2]

Aldasoro "Effects of Covid- 19 on the banking sector: The market’s assessment (No. 12)" Bank for International Settlements (2020)

[3]

Baldwin "Economics in the time of COVID-19: A new eBook" VOX CEPR Policy Portal (2020)

[4]

Islamic vs. conventional banking: Business model, efficiency and stability

Thorsten Beck, Asli Demirgüç-Kunt, Ouarda Merrouche

Journal of Banking & Finance 2013 10.1016/j.jbankfin.2012.09.016

[5]

Beck "Are Banks Catching Corona? Effects of COVID on Lending in the US" (2021)

[6]

Beck "How is coronavirus affecting the banking sector?" Economic Observatory (2020)

[7]

Bellens "How banks can successfully emerge from COVID-19" (2020)

[8]

The credit crisis around the globe: Why did some banks perform better?

Andrea Beltratti, René M. Stulz

Journal of Financial Economics 2012 10.1016/j.jfineco.2011.12.005

[9]

How does capital affect bank performance during financial crises?

Allen N. Berger, Christa H.S. Bouwman

Journal of Financial Economics 2013 10.1016/j.jfineco.2013.02.008

[10]

Campbell "The role of financial markets and institutions in supporting the global economy during the COVID-19 pandemic" (2021)

[11]

El-Chaarani "The impact of COVID-19 on financial structure and performance of Islamic banks: a comparative study with conventional banks in the GCC countries" Journal of Economic and Administrative Sciences (2022)

[12]

Demirguc-Kunt "Bank capital: Lessons from the financial crisis" Journal of Money, Credit and Banking (2013) 10.1111/jmcb.12047

[13]

Banking sector performance during the COVID-19 crisis

Asli Demirgüç-Kunt, Alvaro Pedraza, Claudia Ruiz-Ortega

Journal of Banking & Finance 2021 10.1016/j.jbankfin.2021.106305

[14]

Elnahass "Global banking stability in the shadow of Covid-19 outbreak" Journal of International Financial Markets, Institutions and Money (2021) 10.1016/j.intfin.2021.101322

[15]

Fahlenbrach "This time is the same: Using bank performance in 1998 to explain bank performance during the recent financial crisis" The Journal of Finance (2012) 10.1111/j.1540-6261.2012.01783.x

[16]

Fakhri "Comparison of Islamic and conventional banking financial performance during the covid-19 period" International Journal of Islamic Economics and Finance (IJIEF) (2021) 10.18196/ijief.v4i0.10080

[17]

Glocker "The determinants of output losses during the Covid-19 pandemic" Economics Letters (2021) 10.1016/j.econlet.2021.109923

[18]

Hasan "The effects of the global crisis on Islamic and conventional banks: A comparative study" (2010)

[19]

Hill "COVID-19: how the European financial regulators are responding" (2021)

[20]

Irresberger "Explaining bank stock performance with crisis sentiment" Journal of Banking and Finance (2015) 10.1016/j.jbankfin.2015.06.001

[21]

Li "A comparative analysis of COVID-19 and global financial crises: Evidence from US economy" Economic Research-Ekonomska Istraživanja (2021)

[22]

Lyócsa "Fear of the coronavirus and the stock markets" Finance Research Letters (2020) 10.1016/j.frl.2020.101735

[23]

Mirzaei "Ank stock performance during the COVID-19 crisis: Does efficiency explain why Islamic banks fared relatively better?" Annals of Operations Research (2022)

[24]

Mollah "Strong board and risk-taking in Islamic banks" Review of Corporate Finance (2021) 10.1561/114.00000004

[25]

Parker "World Vs Virus podcast: An economist explains what COVID- 19 has done to the global economy" World Economic Forum (2020)

[26]

Paulus "Dramatic declines of the world’s stock exchanges as a result of the COVID-19 crisis" (2020)

[27]

Pelster "Bank stock performance and bank regulation around the globe" The European Journal of Finance (2018) 10.1080/1351847x.2016.1226189

[28]

Sharif "COVID-19 pandemic, oil prices, stock market, geopolitical risk, and policy uncertainty nexus in the US economy: Fresh evidence from the wavelet-based approach" International Review of Financial Analysis (2020) 10.1016/j.irfa.2020.101496

[29]

Vereckey "Economist Stanley Fischer critiques COVID-19 monetary policies. MIT Sloan school of management" (2021)

[30]

Weiss "Global economic effects of COVID-19" Congressional Research Service (2020)

[31]

Zaremba "Infected markets: Novel coronavirus, government interventions, and stock return volatility around the globe" Finance Research Letters (2020) 10.1016/j.frl.2020.101597

Metrics

3

Citations

31

References

Details

Published: Jul 26, 2023
Vol/Issue: 3(3)
Pages: 389-416

Authors

B

Bashar Abdallah

University of Granada , Granada,

F

Francisco Rodríguez-Fernández

University of Granada , Granada,; FUNCAS , Madrid,

Cite This Article

Bashar Abdallah, Francisco Rodríguez-Fernández (2023). Global Banking Performance in the Time of COVID-19: Impact on Commercial and Islamic Banks. Review of Corporate Finance, 3(3), 389-416. https://doi.org/10.1561/114.00000045

Global Banking Performance in the Time of COVID-19: Impact on Commercial and Islamic Banks

You May Also Like