Impact of Covid on Performance and Risk on Islamic and Conventional Banks

Abstract

This study examines the impact of the COVID-19 pandemic on the performance and risk profiles of Islamic and conventional banks, focusing on banks in Pakistan and Bangladesh. The research objectives include exploring the effects of COVID-19 on Islamic and conventional banks, comparing the two types of banks, and determining the relative level of risk between them. The study utilizes annual statements of 5-8 Islamic banks and 5-8 conventional banks from 2015 to 2021 to analyze the data. The findings of the study reveal several important insights. Firstly, the COVID-19 pandemic has a significant negative impact on the financial performance of banks. Secondly, Islamic banks show a positive influence on financial performance, although it is not statistically significant. Thirdly, there is no statistically significant difference in risk profiles between Islamic and conventional banks. However, the pandemic has a significant positive impact on the risk profile of banks. The study has implications for the banking industry and policymakers. It highlights the need for banks to improve their risk management practices to ensure stability and resilience during crises. Islamic banks demonstrate a better level of flexibility and resilience, suggesting that conventional banks can learn from Islamic banking practices. Policymakers should consider the unique characteristics of Islamic banking when developing crisis-related regulations. Bank continuity planning is crucial in mitigating the impact of future crises, and further research is needed to better understand the dynamics of the pandemic's effects on the banking sector. In conclusion, this study contributes to the understanding of how the COVID-19 pandemic affects Islamic and conventional banks, providing valuable insights for scholars and stakeholders. Effective risk management, adaptation, and policy considerations can help banks minimize the negative consequences of crises and contribute to financial stability and economic recovery.