Abstract:

This study aims to identify variables which determine credit risk in Islamic and Conventional banks. Panel data fixed effect model employed to analyze which belongs to three Islamic Banks in Turkey for the period 2008 Q1 to 2017 Q4. While for conventional banks, previous studies that has been conducted in Turkey used to compare Islamic to Conventional banks (CB). Non-performing Loans (NPL) ratio was used as a proxy for credit risk. Result from fixed effect model showed that NPL in Islamic Banks is positively affected by Loan Loss Provision and Proportion of Loans to Deposits, and it is negatively affected by Assets Size. While literature showed that conventional bank’s credit risk is positively affected by Net Interest Margin, Loan Loss Provision, and Capital Adequacy Ratio and it is negatively affected by Proportion of Loan to Deposits, Proportion of Loans to Assets and Size. There were clear differences between both Islamic and Conventional banks related to all variables of study except Loan Loss Provision and Proportion of Loan to Assets ratios.

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