Malaysian Finance Association International Conference 2023

Description

The power of sectoral diversification in stabilizing bank credit during the business cycle

We examine whether diversification acts as a smoothing mechanism in bank lending behavior throughout the business cycle using a dataset comprising 44 conventional and 21 Islamic banks from the Gulf Cooperation Council (GCC) countries spanning from 2008 to 2021. Our analysis reveals that both conventional and Islamic banks demonstrate procyclical lending behavior specifically during economic downturns, with Islamic banks showing slightly lower levels of procyclicality. Additionally, our findings indicate that a moderate level of bank diversification enhances bank stability, while excessive diversification exhibits nonlinear effects, particularly notable in Islamic banks. These results carry significant implications for bank managers and regulators alike.

Period	2023
Event type	Conference
Conference number	25th
Location	Selangor, MalaysiaShow on map
Degree of Recognition	National