Abstract:

Since the inception of Islamic banking in the late 1970s, it has grown rapidly all over the world, especially in the GCC where Islamic banking has rapidly become a substantial part of the financial system. The ongoing turbulence in global financial markets highlights the importance of financial stability for broader economic developments. It is argued that Islamic banking is a viable alternative to promote economic growth and is better-suited to absorb macro-financial shocks because structural advantages over the traditional banking. Given the recent political uprisings in the GCC, the financial stability in these countries has become a major concern not only for countries themselves but also for the rest of the world. This study aims to empirically analyse the financial strength of Islamic banks based on the data covering individual Islamic and commercial banks in the GCC, including Turkey. It reveals that the financial stability of the large commercial banks is more stable than the financial stability of the large Islamic banks. On the other hand, the financial stability of the small Islamic banks is more stable than the financial stability of the small Commercial banks.

Keywords: