Sustainable performance during the COVID-19 pandemic: a comparative analysis of Islamic and conventional banks

Abstract

This study examines the role of market competition and efficiency in explaining banks’ stability during the COVID-19 pandemic. Using a sample of 575 banks in 20 countries in the Middle East and North Africa (MENA) region for the period 2006-2021, we investigate the individual and joint effects of competition and efficiency on bank profitability and risk during the COVID-19 pandemic. The results indicate that both market power and efficiency are strong determinants of bank performance and stability in the MENA region, and these effects are similar across different types of banking systems (conventional and Islamic) in the pre-COVID-19 period. The analysis of bank performance during the pandemic period (2020-2021) shows that efficient banks exhibit better profitability and cost-effectiveness if they operate in a more competitive environment and are Islamic. Regarding the interaction effect, our results indicate that market competition seems to reinforce the positive effect of efficiency on Islamic banks ‘stability during the recent financial crisis. Keywords Competition, COVID-19 pandemic, efficiency, profitability, stability