The Ownership Structure, Capital and Bank Lending in Times of Crisis: Islamic Banks versus Conventional Banks

Abstract

This study empirically investigates the relationship between ownership structure, capital, and bank lending for Islamic and conventional banks during the financial crisis of 2008 to 2009. Using 118 banks from 19 countries over the global financial crisis, the study examines whether the relationship varied with the ownership structure and capital quality on bank lending behaviour. The authors found that government- owned Islamic banks had a higher loan growth rate than conventional banks during the crisis. The increased lending of the government-owned banks was correlated with high-quality capital and more positive GDP and inflation over the duration of the crisis. The evidence supported the notion that the government-owned banks had a significantly positive effect on the lending growth in Islamic banks after the banks retained sufficient capital. High capital quality can help Islamic banks to survive during a financial crisis and to channel credit in the real market. This study contributes to the proof support that the Islamic banking system can be beneficial for financial and economic stability, especially during a financial crisis.