Sustainability of Islamic banks : a comparative analysis between GCC and Non-GCC countries

This study aimed to examine Islamic banking sustainability from institutional and welfarist perspectives within the Gulf Cooperation Council (GCC) and the Non-Gulf Cooperation Council (Non-GCC) countries. From the institutional approach, the study investigated the levels and extent of Islamic banking survival and assessed the short- and long-run dynamic relationships of banking solvency and operational self-sufficiency. The welfarist approach explores the dynamic impacts of the Islamic banks’ capital allocation and financial decisions on societal well-being through the outreach and maqasid sharia indexes. Non-parametric, semi-parametric, parametric, and panel survival analyses were employed to predict the survivability of Islamic banks in the GCC and Non-GCC countries. Panel cointegration analyses of the aggregate and bank-country data were also used to estimate the long-run comovement and dynamic relationships among the sustainability components. It utilized unbalanced financial and macroeconomic data between 1987 and 2014. In general, the nonparametric analysis revealed that Islamic banks had a higher survival rate, whereas Islamic banks in the Non-GCC countries recorded a lower survival rate than the banks in the GCC countries. Additionally, the split time analysis predicted 3.6 percent failure recurrence possibilities of the sample of all the banks. The survival analyses presented similar outcomes of the Islamic banks’ survivability. However, the country aggregate analysis found that the sustainability components were cointegrated in the two regions except for outreach in Non- GCC countries. On the other hand, the bank-country specific analysis revealed the comovement of the sustainability components except for operational self-sufficiency in the Non- GCC countries. Finally, the results of the dynamic analyses revealed that institutional components influenced maqasid sharia in the GCC countries and not in the Non-GCC countries. These findings suggest that Islamic banks in GCC are more sustainable than those in Non-GCC countries. Banks in Non-GCC countries should focus on operational selfsufficiency and outreach to enhance their sustainability.