Credit default risk in Islamic and conventional banks: Evidence from a GARCH option pricing model

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dc.authoridÇevik, Emrah İsmail/0000-0002-8155-1597
dc.authoridDibooğlu, Selahattin/0000-0002-3865-5868
dc.authorscopusid8873464300
dc.authorscopusid26653963900
dc.authorscopusid57762433700
dc.contributor.authorDibooğlu, Sel
dc.contributor.authorÇevik, Emrah İsmail
dc.contributor.authorAl Tamimi, Hussein A. Hassan
dc.date.accessioned2023-04-20T08:02:27Z
dc.date.available2023-04-20T08:02:27Z
dc.date.issued2022
dc.departmentFakülteler, İktisadi ve İdari Bilimler Fakültesi, İktisat Bölümü
dc.description.abstractAn important question in banking is whether restrictions placed on Islamic banks make them more resilient to financial market turmoil and less prone to failure than conventional banks. We evaluate this claim by estimating credit default risk measures for a sample of conventional and Islamic banks using a GARCH option pricing model. Using a daily data set that is better suited for the time variation in volatility, we calculate distance to default measures to evaluate credit risk of Conventional Banks (CBs) and Islamic banks (IBs). We find higher default risk measures for IBs than CBs in general except during the Global Financial Crisis. This result holds true after controlling for bank and country specific variables in that IBs seem to have significantly lower default risk during the Global Financial Crisis and higher default risk thereafter. Consequently, while restrictions on risk taking is advantageous in financial turmoil episodes, the same restrictions expose IBs to risks in normal times. Finally, the credit risk of CBs and IBs is negatively affected by the oil crisis in 2014-2015 and the Covid-19 global pandemic. While there is no significant difference between the effects of the oil crisis on IBs versus CBs, the recent Covid-19 pandemic seems to have worsened the credit risk of IBs compared to CBs. (c) 2022 Economic Society of Australia, Queensland. Published by Elsevier B.V. All rights reserved.
dc.description.sponsorshipUniversity of Sharjah, United Arab Emirates
dc.description.sponsorshipFinancial support from the University of Sharjah, United Arab Emirates is gratefully acknowledged.
dc.identifier.doi10.1016/j.eap.2022.06.006
dc.identifier.endpage411
dc.identifier.issn0313-5926
dc.identifier.scopus2-s2.0-85132713833
dc.identifier.scopusqualityQ1
dc.identifier.startpage396
dc.identifier.urihttps://doi.org/10.1016/j.eap.2022.06.006
dc.identifier.urihttps://hdl.handle.net/20.500.11776/10932
dc.identifier.volume75
dc.identifier.wosWOS:000818647700006
dc.identifier.wosqualityQ1
dc.indekslendigikaynakWeb of Science
dc.indekslendigikaynakScopus
dc.institutionauthorÇevik, Emrah İsmail
dc.language.isoen
dc.publisherElsevier
dc.relation.ispartofEconomic Analysis and Policy
dc.relation.publicationcategoryMakale - Uluslararası Hakemli Dergi - Kurum Öğretim Elemanıen_US
dc.rightsinfo:eu-repo/semantics/closedAccess
dc.subjectBank Default Risk
dc.subjectFinancial Intermediation
dc.subjectIslamic Banking
dc.subjectGarch Option Pricing
dc.subjectFinancial Stability
dc.subjectPanel-Data
dc.subjectValuation
dc.subjectCrisis
dc.subjectDistance
dc.subjectImpact
dc.titleCredit default risk in Islamic and conventional banks: Evidence from a GARCH option pricing model
dc.typeArticle

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