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The effect of financial crisis on Islamic banking Compared with non-Islamic banking in Gulf council countries (GCC) - Essay Example

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The effect of financial crisis on Islamic banking Compared with non-Islamic banking in Gulf council countries (GCC)

Some specialists have argued that the Islamic banks were less affected by the financial crises because of their risk-sharing and asset-based nature as well as the fact that they do not deal with the kind of assets associated with most of the losses that non-Islamic banks suffer during financial crises. Still another section of experts argue that the Islamic Banks, just like the non-Islamic banks, have depended on leverage and have taken on considerable amounts of risks that expose them to the second phase impact of the global financial crises (Čihák & Hesse, 2008).
By and large, Islamic Banks suffered less risk compared to non-Islamic banks during the 2008 financial crisis, especially considering that the non-Islamic banks suffered the largest losses in Europe and the US. A close study on 2008 financial crises shows that Islamic Banks did better, in terms of profitability, than the non-Islamic banks. This situation, however, retracted in 2009 as the impact of the crises became more real. Islamic Banks from GCC continuously showed a growth in assets and credit that surpassed the non-Islamic banks in all countries, apart from UAE.
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Islamic Banks from GCC continuously showed a growth in assets and credit that surpassed the non-Islamic banks in all countries, apart from UAE (Cihak & Hesse, 2008). The nature of Islamic banks business model played a key role in containing the unfavorable effect on their profitability during 2008 financial crisis. Additionally, some Islamic banks experienced a weakness in risk-management practices, which led to larger reduction in profitability compared to non-Islamic banks in 2009. Essentially, Islamic banks maintained stable external ratings and achieved a relatively stronger demand for credit, courtesy of their higher solvency and lower leverage (Cihak & Hesse, 2008). GCC economy The GCC region has the largest confirmed oil reserves in the world, with up to 486.8 billion barrels, which accounts for 35.7 percent of all the oil reserves in the world. As a result, this region is the largest producer and exporter of petroleum oil, globally. The region consists of six countries, which have enjoyed an impressive economic explosion until late 2008, when the effects of global financial crises became unbearable. Between 2002 and 2008, the economy of GCC tripled in size to $1.1 trillion. The GCC member countries takes up 49% of the total OPEC crude oil production and 52% of the total 52% of the total OPEC oil reserves. The regions’ oil and gas sector takes up about 73% of its total exports earnings, 41 of its GDP, and about 63% of the government’s revenue. The annual average OPEC’s oil price reduced by 35.4% to $61.06 per barrel in 2009 vis a vis US$ 94.45 per barrel in 2008. This decline was essentially as a result of the global financial crisis and the fall in world energy demands. The fall in global oil market ...Show more

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This paper delves into the effects of financial crisis on Islamic banking compared with conventional banking in the gulf council countries (GCC). It is noted that Islamic banks performs better during financial crisis than their conventional counterparts, largely because of shariah law…
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The effect of financial crisis on Islamic banking Compared with non-Islamic banking in Gulf council countries (GCC) essay example
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