IMPACT OF FINANCING TOWARD THE FINANCIAL PERFORMANCE: A COMPARATIVE STUDY BETWEEN ISLAMIC BANKS AND CONVENTIONAL BANKS IN GCC
Abstract
The study aimed to compare the financial performance of both banking system and to investigate the different impact of financing products (Islamic loans and conventional loans) on bank's profitability in GCC countries (Saudi Arabia, United Emirate, Bahrain, Qatar, Kuwait, and Oman) over the period between 1999 and 2014. The study used two profitability measures namely, return on average assets (ROAA) and return on average equity (ROAE). The study used unbalanced panel data set of 1228 observations with total of 45 Islamic banks and 49 conventional banks. The empirical results estimated by generalized method of moment indicated that loans of both banking system had positive and significant relationship with bank's profitability. The result also found that conventional banks performed better than its Islamic counterparts in terms of ROAA and ROAE signified by the dummy variable. Moreover, the study indicate that Islamic loans have significant different impact on ROAA comparing to conventional loans. While no significant different impact between Islamic loans and conventional loans on ROAE. Finally, Gross domestic product (GDP) has positive relationship with the profitability of Islamic and conventional banks while Inflation has negative but insignificant impact.