Banking System in the MENA Region: A Comparative Analysis Between Conventional and Islamic Banking in the UAE

  • Fiona Mrad
  • Miroslav MateevEmail author
Conference paper
Part of the Advances in Science, Technology & Innovation book series (ASTI)


This paper investigates the banking systems in the MENA region and compares the performance of conventional and Islamic banks in the UAE, using descriptive, correlation, and multiple regression analyses to analyze their efficiency and profitability. The analysis uses a sample of 352 observations from 32 banks, for 11 years (2005–2015). We find a significant difference in cost efficiency between conventional and Islamic banks in the UAE. The impact of bank-level characteristics and capital adequacy measures on a bank’s cost efficiency is strong in both types of banks. Risk-taking has a strong influence on the cost efficiency of conventional banks, but this effect is insignificant for Islamic banks. We find that profitability is not significantly different between conventional and Islamic banks. The effect of capital adequacy measures on a bank’s profitability is strongly significant only in the group of conventional banks. However, Islamic banks’ profitability is more responsive to risk-taking. We are suggesting that since Islamic and conventional banks are governed by different rules and principles, then setting up and implementation of regulations should be different for each type of bank to improve their financial performance, compliance standing, and risk assessment. We also recommend that banking systems in the MENA region should increase their ability to adapt applicable reforms and share the Islamic banking principles and instruments as they are more efficient toward the social responsibility and the risk effects.


MENA region Conventional banking Islamic banking Cost efficiency Profitability Financial crisis 


  1. Addawe, S. (2012). What are the impacts of the global financial crisis on Islamic banking system and how Islamic bank spared from the crisis? Master’s thesis, Aalto University, School of Economics, Department of Accounting.Google Scholar
  2. Alharbi, A. (2015). Development of the Islamic banking system. Journal of Islamic Banking and Finance, 3(1).Google Scholar
  3. Amba, M. S., & Almukharreq, F. (2013). Impact of the financial crisis on profitability od the Islamic banks versus conventional banks—Evidence from GCC. International Journal of Financial Research, 4(3).Google Scholar
  4. Bahrini, R. (2017). Efficiency analysis of Islamic banks in the Middle East and North Africa Region: A bootstrap DEA approach. International Journal of Financial Studies, 5(1):7.CrossRefGoogle Scholar
  5. El Massah, S., & Al Sayed, O. (2015). Banking sector performance: Islamic and conventional banks in the UAE. International Journal of Information Technology and Business Management, 36(1).Google Scholar
  6. Faizulaye, A. (2011). Comparative analysis between Islamic banking and conventional banking firms in terms of profitability, 2006–2009. Master’s Thesis, Eastern Mediterranean University, Science in Banking and Finance.Google Scholar
  7. Gebba, T. R., & Aboelmaged, M. G. (2016). Corporate governance of UAE financial institutions: A comparative study between conventional and Islamic banks. Journal of Applied Finance & Banking, 6(5), 119–160.Google Scholar
  8. Ghenimi, A., Oweis, K., & Omri, M. A. (2015). Financial stability of Islamic banks in the MENA countries during financial crisis and political uncertainty: An empirical investigation. Journal of Academic Finance, 7(1).Google Scholar
  9. Ghenimi, A., Chaibi, H., & Omri, M. A. (2017). The effects of liquidity risk and credit risk on bank stability: Evidence from the MENA region. Borsa Istanbul Review, 17(4), 238–248.CrossRefGoogle Scholar
  10. Gray, S. T., Karam, P. D., Meeyam, V., & Stubbe, M. (2013). Monetary issues in the Middle East and North Africa region: A policy implementation handbook for central bankers (IMF Departmental Paper No. 13/10).Google Scholar
  11. Habibi, N. (2009). The impact of the global economic crisis on Arab countries: A year-end assessment. Middle East Brief 114(40).Google Scholar
  12. Haque, F., & Brown, K. (2016). Bank ownership, regulation and efficiency: Perspectives from the Middle East and North Africa (MENA) region. International Review of Economics & Finance, 47(2017), 273–293.Google Scholar
  13. Ibrahim, M. (2015). A Comparative study of financial performance between conventional and Islamic Banking in United Arab Emirates. International Journal of Economics and Financial Issues, 5(4), 868–874.Google Scholar
  14. Ibrahim, I. (2016). Financial performance of Islamic and conventional banks in the United Arab Emirates: A comparative study. Master’s Thesis, The University of Namibia, Business Administration (Finance).Google Scholar
  15. Lassoueda, N., Attia, M. B., & Sassi, H. (2017). Earnings management in Islamic and conventional banks: Does ownership structure matter? Evidence from the MENA region. Journal of Accounting, Auditing, and Taxation.Google Scholar
  16. Miah, M. D., & Uddin, H. (2017). Efficiency and stability: A comparative study between Islamic and conventional banks in GCC countries. Future Business Journal, 3(2), 172–185.CrossRefGoogle Scholar
  17. Noor, M. A., & Ahmad, N. H. (2012). The determinants of Islamic banks’ efficiency changes: Empirical evidence from the world banking sectors. Global Business Review, 2012(13), 179–200.CrossRefGoogle Scholar
  18. Olson, D. & Zoubi, T. (2016). Convergence in bank performance for commercial and Islamic banks during and after the Global Financial Crisis. The Quarterly Review of Economics and Finance, 56.Google Scholar
  19. Rachdi, H., Hakimi, A., & Hamdi, H. (2015). Financial liberalization, banking crisis and economic growth in MENA region: Do institutions matter?Google Scholar
  20. Shaukat, T. K., Onder, H., Hussain, S. S., Audiger, C., & Nallari, Y. R. (2017). Sustaining fiscal reforms in the long-term (English). Gulf Economic Monitor, 2(1).Google Scholar
  21. Tabash, M. I., Yahya, A. T., & Akhtar, A. (2017). Financial performance comparison of Islamic and conventional banks in the United Arab Emirates (UAE), Dubai Business School. In 1st International Conference on Advances in Business, Management and Law.Google Scholar
  22. Tahir, I. Z., & Haron, S. (2010). Cost and profit efficiency of Islamic banks: International evidence using the stochastic frontier approach. Banks Bank System, 2010(5), 78–83.Google Scholar
  23. The World Bank. (2015, March). Islamic finance. Financial Sector Brief. Retrieved from
  24. Tlemsani, I., & Al Suwaidi, H. (2016). Comparative analysis of Islamic and conventional banks in the UAE during the financial crisis. Asian Economic and Financial Review, 6(6), 298–309.Google Scholar
  25. Ul-Islam, T., & Ashrafuzzaman, M. (2015). A comparative study of Islamic and conventional banking in Bangladesh: Camel analysis. Journal of Business and Technology, X(01) (Dhaka).Google Scholar

Copyright information

© Springer Nature Switzerland AG 2020

Authors and Affiliations

  1. 1.American University in the EmiratesDubaiUAE

Personalised recommendations