Islamic Banks and the Global Financial Crisis of 2007-09: An Assessment

Abstract

We examine the experience of the Islamic banks with respect to the global financial crisis of 2007-09 (GFC) and find that these were not immune from the ravages of the GFC. In particular, our analysis of the banking sector in Malaysia shows that the Islamic banks were adversely affected by it to a greater extend then were the conventional banks. Post-December 2008, the capital adequacy ratios for these banks were significantly lower, the loan loss ratios significantly higher, and their total loss reserves and secondary liquidity positions deteriorated.