Credit risk is one of the largest and most significant risk exposures facing banks. This study aims to empirically measure the impact of credit risk on the profitability of Islamic banks and conventional banks operating in Palestine. The study also aims to show if there is a significant difference in the impact of credit risk on the profitability of Islamic and conventional banks. The interactive effect of the Covid 19 pandemic with the credit risk factors is studied to prove whether the pandemic affects the profitability of both types of banks. The study analyzed the data from 13 banks (11 conventional and two Islamic banks). The sample period extends from 2011 to 2020. Banks' profitability is measured using return on assets (ROA) and return on equity (ROE). Credit risk variables are measured using the non-performing loan ratio, loan provision to gross loans, and capital adequacy ratio. In addition, a set of macroeconomic and micro-control variables are investigated. Using panel regression analysis, the study finds that credit risk significantly impacts Islamic and conventional banks' profitability. However, this effect is sensitive to the measure of profitability. While credit risk significantly impacts the ROA, it has no significant impact on the ROE. In addition, the study finds that the impact of credit risk on the profitability of Islamic banks is different from that of conventional banks. In addition, the credit risk that rises during the Covid-19 pandemic has an insignificant impact on the profitability of both types of banks.

Title

International Conference on Business and Technology

Publisher

Springer, Cham

Publisher Country

Switzerland

Indexing

Scopus

Impact Factor

None

Publication Type

Online only

Volume

495

Year

2022

Pages

10