Islamic and conventional banks’ governance in the GCC region: A comparative analysis of risk-based financial performance

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Abstract

This study measures the risk-taking behaviour of banks in the Gulf Cooperation Council (GCC). Then, it investigates how this risk-taking leads to enhanced financial performance for Islamic banks compared to conventional banks. Our sample includes all locally incorporated 63 chartered banks, including 22 Islamic banks and 41 conventional banks in the six GCC countries for 13 years between 2003 and 2015. We adopt regression analysis, whereas the mean difference test is used to evaluate the variance of performance. The analysis shows that banks’ internal growth significantly determines risk-taking and financial performance. GCC’s Islamic banks are riskier than their conventional counterparts. Two measures of risk have rarely been observed as statistically significant factors for determining the profitability of conventional banks. Ultimately, the category of the bank in the GCC region significantly impacts financial performance as a whole, and therefore, bank policy must be considered. The results provided valuable perceptions to Islamic and conventional banks across the GCC, allowing them to improve their financial performance by considering risk-taking behaviour. It likewise provides information that supports investors, regulators and executive managers in GCC countries. The study’s originality lies in its contribution to GCC nations by presenting a comparative view of the two clusters of banks.

Keywords: Customer Loyalty, Audit, Services, Listed Companies, VietnamBank Risk-Taking, Return on Assets, Return on Equity, Conventional Bank, Islamic Banks, GCC Region

Authors’ individual contribution: Conceptualization — S.Z.; Methodology — A.Als.; Software — M.A.-S.; Validation — A.Als.; Formal Analysis — A.Als.; Investigation — S.E.-H. and A.Alq.; Resources — S.Z. and A.Alq.; Data Curation — S.Z.; Writing — Original Draft — S.Z.; Writing — Review & Editing — S.Z. and A.Alq.; Visualization — A.Als. and A.Alq.; Supervision — S.Z.; Project Administration — S.Z.; Funding Acquisition — A.Alq. and T.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M410

Received: 14.12.2024
Revised: 26.02.2025; 16.03.2025; 07.05.2025
Accepted: 20.05.2025
Published online: 23.05.2025

How to cite this paper: Zulfiqar, S., Alqatan, A., Alsaber, A., Al-Sabah, M., Alshammari, T., & El-Halaby, S. (2025). Islamic and conventional banks’ governance in the GCC region: A comparative analysis of risk-based financial performance [Special issue]. Journal of Governance & Regulation, 14(2), 254–264. https://doi.org/10.22495/jgrv14i2siart4