Unveiling interest rates and Islamic banking activity: empirical evidence from Saudi banks
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 31 May 2024
Abstract
Purpose
The purpose of this paper was to explore the impact of interest rate shocks on the deposits and financing of Islamic and conventional banks in Saudi Arabia.
Design/methodology/approach
The authors use impulse response functions (IRFs) and variance decomposition (VDC) analyses over the period 2008Q1–2020Q2.
Findings
The IRFs showed that increasing interest rates reduce loans and conventional deposits. For Islamic banks, the deposits are more affected by interest rate changes than the financing. The VDC analysis found that deposits contribute up to 61% of Islamic financing variations, compared to only 25% in conventional lending ones.
Originality/value
This research contributes to the field of Islamic economics and finance by providing empirical evidence on how interest rates likely impact Islamic and conventional deposits and financing in Saudi banking system.
Keywords
Acknowledgements
The authors thank the anonymous referees for their valuable suggestions.
Author contributions: MD: Conception or design of the work, Study design and methods used, Data collection, Drafting the manuscript.
JB: Conception or design of the work, Empirical results interpretation, Drafting the manuscript, Critical revision of paper, Final approval of the version to be published.
Ethical statements: The authors approve the ethical standards of the publisher. This article does not contain any studies with human participants or animals performed by any of the authors. Thus, necessity for informed consent does not apply.
Competing interests: The authors declare no competing interests.
Data availability: The data are available from the corresponding author upon reasonable request.
Citation
Djelassi, M. and Boukhatem, J. (2024), "Unveiling interest rates and Islamic banking activity: empirical evidence from Saudi banks", Journal of Islamic Accounting and Business Research, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JIABR-09-2023-0311
Publisher
:Emerald Publishing Limited
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