The effects of 2008 global financial crisis on conventional and interest - free banking sector: A comparative analysis on Gulf countries

The Global Financial Crisis is the financial crisis which had started with mortgage lending and securitization problems in the United States and very quickly spread throughout the world by 2008 and therefore it is also defined as the 2008 crisis. The financial system constitutes a significant part of the economic system, has been severely affected by this crisis. And the banking sector, which is the most important part of the financial system, has been directly affected by the global financial crisis. Conventional banks have the largest share in the banking sector in the world among other type of banks, namely; Islamic (interest free) banks, investment and development banks. Islamic banking has the same functions of fund-raising and credit distribution like the conventional banking sector, but it differentiates in terms of methods and principles, where Islamic banks base their system on Islamic law. Although Islamic banks have developed in different parts of the world, Gulf countries have a very vibrant Islamic banking sector. Therefore, Gulf countries (especially the member states of the GCC) have been subject to many Islamic finance researches. The aim of this study is to see if Islamic banks are really more resistant to crises and less affected from them in practice as it is told in theory. In this direction, the impact of the 2008 global financial crisis will be compared through certain items on the balance sheets of twenty-six Islamic banks and conventional banks from their annual reports.