The Impact of the International Financial Crisis on the Performance of Islamic Banks in MENA Countries

Abstract

Purpose

The financial crisis at the end of the past decade resulted in downturns in stock markets and the collapse of many large banks around the world. It encouraged economists worldwide to consider alternative financial solutions. Attention has been focused on Islamic finance as an alternative model. This study examines the performance of Islamic banks in 10 Middle Eastern and North African (MENA) countries over the period of 2005–2010.

Methodology/Approach

It is an intertemporal analysis where it compares the profitability, liquidity, risk and solvency, and efficiency of 43 Islamic banks before and after the financial crisis.

Findings

The results show that the financial crisis negatively affected the performance of Islamic banks. The profitability and liquidity of Islamic banks in Gulf Cooperation Council (GCC) countries decreased drastically after the crisis. Islamic banks in non-GCC countries were efficient and more profitable compared to GCC countries. However, they took excessive risk during and after the financial crisis. The chapter concludes that Islamic financial institutions are not immune from the effects of the global recession.

Originality/Value

The financial crisis has led to a greater recognition of the importance of liquidity risks. Reinforcing regulations and setting up a strong liquidity management framework are needed to improve the Islamic financial industry.

Citation

Zarrouk, H. (2014), "The Impact of the International Financial Crisis on the Performance of Islamic Banks in MENA Countries", The Developing Role of Islamic Banking and Finance: From Local to Global Perspectives (Contemporary Studies in Economic and Financial Analysis, Vol. 95), Emerald Group Publishing Limited, Leeds, pp. 45-69. https://doi.org/10.1108/S1569-3759(2014)0000095011