Impact of Islamic Banks Performance on Financial Crisis Probability

Abstract

This study is designed to examine the Impact of Islamic banks ' practices on the financial crisis probability. Some economic experts accused financial system as hole, and especially banks panics of causing international financial crisis .Therefore, this study is designed to investigate whether Islamic banks practices can creating financial crisis or they are protected from financial crises. The aim of this study hence is to discover new theory in relation between Islamic finance and financial crisis probability, also to investigate the causes of international financial crisis in the Islamic banks. to reach this aim a fulfilled in the IFSB members are sampled including fifteen banks provide only Islamic finance window over nine countries with time series from 2000—2009. The data is collected from under study banks' published annual reports. The study follows historical and descriptive methods. Sample mean, standard deviation, correlation, regression,T-test and Z score predictor model for crisis are used. The empirical analysis, conducted in this study demonstrates: Islamic banks have sufficient liquidity ratio; but they haven't sufficient profitability ratio; their lending doesn't include high credit risk (standard deviation=.03, variance=.001); Islamic banks are not protected from financial crisis ( the mean Z score for sample =2.13). Based on these findings, the study recommends Islamic banks should increase investment rate of return, and retained earnings; IFSB should increase tier 1 capital ratio by more than 7% as increase than that state by Basel