Analysis of Factors Affecting the Financial Stability of Islamic Banks in Selected OIC Member Countries with an Emphasis on Sukuk Market Development

Mahdavi Nejad, Hossein; Daei-Karimzadeh, Saeed; Sharifi Renani, Hossein

Analysis of Factors Affecting the Financial Stability of Islamic Banks in Selected OIC Member Countries with an Emphasis on Sukuk Market Development

Document Type : Original Article

Authors

hossein mahdavi nejad ¹

Saeed Daei-Karimzadeh ²

hossein Sharifi Renani ³

¹ PhD Student, Department of Economics, Isf.C., Islamic Azad University, Isfahan, Iran.

² Associate Professor, Department of Economics, Isf.C., Islamic Azad University, Isfahan, Iran.

³ Associate Professor, Department of Economics, Isf.C., Islamic Azad University, Isfahan, Iran

Abstract

Given the occurrence of financial crises around the world in recent years, the issue of financial stability has become one of the most important challenges and concerns for economic decision-makers and policymakers in countries. The objective of this research is to analyze the factors affecting the financial stability of all Islamic banks and financial institutions operating in 17 selected member countries of the Organization of Islamic Cooperation. For this purpose, the Z Score index is employed to measure the financial stability of Islamic banks. The effects of Sukuk market development, asset quality, bank size, inflation, the global uncertainty index, and financial inclusion are analyzed using Stata software and the two-step system Generalized Method of Moments (GMM) model developed by Arellano and Bond, over the period 2013–2024. The research findings indicate that the variables of inflation, bank size, and the world uncertainty index have a negative impact, while the variables of asset quality, Sukuk market development, financial inclusion, and the first lag of the financial stability variable have a positive impact on financial stability.

Keywords

Islamic banks

financial stability

Sukuk

Islamic financial industry

Arellano-Bond two-step GMM method