Effects of the current financial crisis on Islamic banks compared to conventional banks

The aim of this study is to determine the impact of the current global financial crisis on Islamic banks compared to conventional ones based on accounting ratios. Islamic banks have their own characteristics and operate under different principles. Firstly, the authors introduce 26 financial ratios in the stepwise logit model to determine whether it is possible to distinguish between the two types of banks in the actual context of crisis. In over 110 bank-years observations, the authors found that accounting ratios are good discriminators between Islamic and conventional banks in the international context. Secondly, the paper determines the impact of the financial crisis on Islamic banks compared to conventional ones. This work introduces a new variable CRISIS which is a time condition that makes a distinction between the crisis period and the pre-crisis period. The main empirical results show that Islamic banks are more stable than conventional banks during the crisis 2007-2008 because of the requirements of Sharia law.