Financial Resilience Under Dual Economic Regimes: A Comparative Panel Analysis of Islamic Banking Stability in South-east Asia and Gulf Cooperation Council Countries
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Abstract
The growing significance of Islamic banking in global financial markets has stimulated renewed academic interest in understanding the determinants of its stability, particularly across regions characterised by distinct economic structures and regulatory environments. This study investigates the bank-specific and macroeconomic determinants of financial stability among 38 Islamic banks operating in four countries, namely Indonesia, Malaysia, the United Arab Emirates, and Qatar, utilising annual panel data spanning the period from 2013 to 2020. A quantitative panel regression framework is employed, incorporating random effects estimation via Generalised Least Squares as the primary model, complemented by fixed effects and Ordinary Least Squares approaches for robustness verification. The dependent variable, banking stability, is operationalised through the natural logarithm of the Z-score, while the independent variables encompass Return on Assets (ROA), total assets, Non-Performing Financing (NPF), Gross Domestic Product (GDP) growth, and inflation. The findings demonstrate considerable regional heterogeneity in the determinants of Islamic banking stability. In Indonesia, bank size, NPF, and GDP growth emerge as statistically significant predictors. In Malaysia, ROA, bank size, and GDP growth are significant. In the United Arab Emirates, only ROA exhibits a significant positive relationship with stability, whereas in Qatar, bank size is the sole significant determinant. Inflation does not produce statistically significant effects in any of the four countries examined. The evidence suggests that Islamic banks should prioritise effective asset and liability management, maintain optimal asset quality, and leverage prior-period stability indicators as forward-looking signals. Region-specific macroprudential supervision and the promotion of equity-based financing instruments are recommended to strengthen the resilience of Islamic banking systems across both regions.
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