A comparative study on the impact of credit risk, capital, and efficiency on the performance of Islamic banks and conventional banks in the ASEAN Region

• Main Authors: Monozca, Miguel Paolo I., Pamuspusan, Bea R., Uy, Kimberly Antonette V., Young, Jacqueline Rosebelle T.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Credit control > Southeast Asia; FInancial risk management > Southeast Asia; Banks and banking > Southeast Asia; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/6850
• Institution: De La Salle University

This study measures the impact of credit risk, capital, and efficiency on the performance of both Islamic banks and conventional banks in the ASEAN Region. It also further compares the performance of both financial institutions in terms of capital adequacy, asset quality, management quality, earnings ability, and liquidity or the CAMEL framework. The generalized methods of moments (GMM) was used to measure the impact of credit risk, capital and efficiency, while the T-test and coefficient of variation (CV) was used to assess the performance using the CAMEL framework. The study compares Islamic and conventional banks from the ASEAN Region during the 2007-2015 period. Data from the banks were gathered from unsolicited financial statements, and after conducting the necessary filtering, the researchers were able to gather a total of 13 Islamic banks and 29 conventional banks. The results show that credit risk has a significant impact while capital and efficiency have an insignificant impact on the performance of Islamic banks and conventional banks. Furthermore, in the ASEAN Region, Islamic banks are riskier that their conventional counterparts. Large Islamic banks, however, face less risk than smaller ones. Meanwhile for the CAMEL framework, Islamic banks and conventional banks have insignificant differences in terms of capital adequacy, asset quality, earnings ability, and liquidity (liquidity assets/total deposits). Liquidity (net loans/short term deposits) and management quality showed significant differences between the two kinds of financial institutions, whereby Islamic banks performed better under both indicators.