MACRO-FINANCIAL DETERMINANTS OF COMMERCIAL BANKING STABILITY IN DUAL BANKING SYSTEMS

Abstract

This study aims to determine how stability of the commercial banking market in dual banking systems is affected by macroeconomic and financial changes. It is also investigated whether the presence of Islamic banks causes a change in commercial banks' response to macro-financial changes. In the study, analyzes were conducted with pooled regression models over a mixed sample of countries with and without a dual banking system. Bank stability has been analyzed using two alternative criteria, which is widely used in the literature the z score and the ratio of non-performing loans to total loans. The findings show that macro-financial variables strongly affect bank stability. There is no clear evidence that Islamic banking in dual banking systems improve bank stability. On the other hand, it was observed that the income or welfare levels of the countries in the sample had a strong relationship with bank stability.