Comparative study of credit risk in Islamic banking and conventional banking (With emphasis on the impact of bank specific factors)

AbstractCredit risk is one of the most important risks that the banking system including Islamic banks and conventional banks is faced. The main source of this risk can be searched through certain banking factors and macroeconomic environment. Due to the important role of bank specific factors on the non-preforming loan of banks, in this study, the effect of management quality, capital adequacy, size and liquidity on credit risk using GMM panel data method in 2011-2016 is investigated in two groups of Islamic and conventional bank. In addition to specific factors, in order to control the role of the macroeconomic factors, the impact of GDP growth rate, exchange rate and inflation rates are considered as the control variable. The results show that there is significant negative correlation between credit risk and size, management quality and capital adequacy, but there is no significant correlation between liquidity ratio and credit risk in Islamic banks. On the other hand, in conventional banks, there are significant negative relation between liquidity, management quality and capital adequacy with credit risk, also results show an insignificant relationship between bank size and credit risk.