Determinants of the Capital Adequacy Ratio Islamic Versus Conventional Banks in MENA Region | ||||
| Alexandria Journal of Managerial Research and Information Systems | ||||
| Volume 3, Issue 3, August 2024, Page 16-73 PDF (1.09 MB) | ||||
| Document Type: Original Article | ||||
| DOI: 10.21608/ajmris.2024.376688 | ||||
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| Author | ||||
| Ayah Gamal Omar El-ghonemey | ||||
| Abstract | ||||
| Aim - This paper investigates the Bank-particular and country-level factors of the capital adequacy ratio of conventional and Islamic banks in the MENA region in a comparative manner. Methodology -Data for all variables related to banks were collected from the Fitch database, while the data for macroeconomic was collected from the Bloomberg database, World's bank database, and Transparency International website. Control variable used to account for differences in bank characteristics and macroeconomic conditions for the MENA region countries. Descriptive analysis was used to describe data and a two regression models are applied to test a population of 334 banks (282 conventional banks and 52 Islamic banks) from 2010 to 2019 from 17 countries in the MENA region namely; Algeria, Bahrain, Morocco, Egypt, Jordan, Kuwait, Qatar, Oman, Saudi Arabia, Lebanon, Tunisia, Syria, Israel, Yemen, the United Arab Emirates, and Gaza. Results- The pooled cross- sectional regression analysis shows that for all banks in the MENA region, the liquidity, deposits, loans, corruption index, size, and GDP are negatively associated with the capital adequacy ratio. In contrast, profitability, credit risk, and governance index are associated positively with the capital adequacy ratio. Moreover, it shows a significant distinction among the capital adequacy ratio of conventional and Islamic banks across the MENA region and conventional banks hold higher capital adequacy ratios than Islamic banks. However, the panel regression findings provide evidence that the influence of the profitability and governance index factors on the capital adequacy ratio differs significantly between conventional and Islamic banks. For conventional banks, the panel data regression analysis shows that profitability and governance quality are significantly and positively correlated with the capital adequacy ratio. While, deposits, size, and loans are significantly negatively associated with the capital adequacy ratio and liquidity and credit risk do not have any significant relationship with the capital adequacy ratio. For Islamic banks, only deposits, loans, size, and GDP show a significant adverse relation with the capital adequacy ratio. This comparison study contributes to the literature by allowing regulators to see whether the factors that influence the capital adequacy ratio as defined by Basel II criteria are identical for both banking systems or whether the difference in conceptual backgrounds of both banking systems impedes adherence to the same regulation. | ||||
| Keywords | ||||
| Keywords: Capital Adequacy ratio; Islamic Banks; Conventional Banks; IFSB; AAOIFI; BCBS | ||||
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