Capital regulation and default risk: a comparative analysis between Islamic and conventional banks in MENA region
by Amal Bakour; Mohamed Imen Gallali
International Journal of Business and Emerging Markets (IJBEM), Vol. 12, No. 4, 2020

Abstract: This research aims to study the relationship between capital and default risk of Islamic banks through a comparative analysis with their conventional counterparts. To do this, we will use a risk indicator called Z-score proposed by Roy (1952), Blair and Heggestad (1978), Boyd and Graham (1986) and Goyeau and Tarazi (1992) and capital adequacy ratio as proposed by the Basel agreements. Our sample includes a panel of 97 banks, including 30 Islamic banks and 67 conventional banks from ten MENA countries namely: Bahrain, Egypt, Jordan, Kuwait, Qatar, UAE, Palestine, Sudan, Yemen and Tunisia, over a ten-year period (2004-2013). Our regressions show that the capital regulation has a positive impact on the default risk in the case of the global sample as well as in the case of the sub-samples of Islamic and conventional banks.

Online publication date: Fri, 11-Dec-2020

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