Impact of Global Financial Crisis on the Performance of Islamic and Conventional Banks: Empirical Evidence from Malaysia

This study aims to conduct a comparative analysis on the impact of the 2007/2008global financial crisis on the Islamic and conventional banks in Malaysia. Three performance indicators, namely profitability, liquidity and credit risk of the banking institutions are being considered. The study covers a five-year period from 2006 to 2010, and divides the sample period into before, during, and after the financial crisis. In methodology, the study adopts the ratio analysis on a sample of six Islamic banks and nine conventional banks. The study documents two main findings: (i) there was no major difference in profitability and credit risk among the two types of the banking institutions due to the financial crisis; and (ii) the Islamic banks were holding more of the liquid assets than their conventional counterparts, thus are less exposed to the liquidity risks due to the financial crisis. The study provides a number of practical implications to the banking sector, particularly on the issue of balancing the profitability-liquidity conflict in the banking institutions.