Threshold Effect of Islamization of the Environment on Reducing the Risk of the Banking Sector in Islamic Countries:Panel Smooth Transition Regression (PSTR) Method

Authors

1 PhD scholar, Islamic Economics, Institute of Higher Education of Islamic Humanities, Al-Mustafa International University, Qom, Iran

2 Assistant Professor, Faculty of Economics, Allameh Tabatabai University, Tehran, Iran

Abstract

The growing importance of Sharia-based financing in banking systems has stimulated scientific research on the factors that shape the way of behavior, how to compete with conventional banks, and how Islamic banks react to various risks and shocks. Based on this, the main goal of this article is to investigate the effect of the Islamic nature of the environment on strengthening and reducing the risk of the banking sector in countries with an Islamic banking system. This article assumes that the stability of Islamic banks is closely related to the Islamic degree of their operating environment. To test this hypothesis, from the data of sixteen selected countries with Islamic banking system including Saudi Arabia, Qatar, Palestine, Pakistan, Oman, Nigeria, Malaysia, Libya, Lebanon, Jordan, Iran, Indonesia, Egypt, Brunei, Bahrain and Afghanistan; It has been used from the first season of 2019 to the third season of 2022. The method of data analysis is based on panel smooth transition regression (PSTR). The findings of the research show that Islamization of the environment in both regimes has had positive effects on increasing banking stability in the studied countries; So that the effectiveness of the second regimen is greater than the first regimen. Based on this, it can be concluded that the Islamization of the environment has been able to exert its positive effects on increasing banking stability, and in order to strengthen this effect, it is necessary to develop the level of compliance of the banks' operating environment with the principles of Sharia.

Keywords

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Journal of Economic Essays; an Islamic Approach
Volume 20, Issue 40 - Serial Number 40
October 2023
Pages 247-277

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