Researcher ORCID Identifier

0009-0000-0507-6037

Graduation Year

2026

Date of Submission

12-2025

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Reader 1

Murat Binay

Reader 2

George Batta

Rights Information

2025 Aadil A Mohamed

Abstract

This study explores the distinctions between Islamic and conventional banks using panel-data fixed-effects regression models. The analysis employs 420 observations of Malaysian Islamic and conventional banks from 2010 to 2024, incorporating variables such as deposit volume, deposit volatility, loan volume, loan volatility, and a post-reform indicator. The findings reveal both similarities and divergences in profitability determinants. While Islamic and conventional banks exhibit comparable insensitivity to deposit and loan volumes, significant differences emerge in their responses to volatility following the 2013 regulatory reforms. Islamic bank profitability exhibits a positive correlation with loan volatility post-reform, suggesting that regulatory constraints compel these banks to price risk directly into lending spreads. In contrast, conventional bank profitability remains insensitive to volatility measures, reflecting their access to conventional hedging instruments. Furthermore, the pre-reform period shows no significant differences between the two systems, whereas post-reform divergence is statistically significant, underscoring how regulatory tightening exposed latent structural distinctions. These results substantiate the argument that Islamic banks are not merely Shariah-compliant adaptations of conventional banks but represent distinct financial institutions with unique profitability mechanisms. The study highlights the 2013 reforms' role in revealing institutional differences and their implications for understanding dual-banking systems. By addressing gaps in the literature, this research contributes to the understanding of Islamic banks as differentiated institutions in the global financial system. Future research may extend these findings by exploring cross-country comparisons and longer regulatory cycles.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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