ARDL Modelling of the Nexus between Bank Efficiency, Asset Management, Bank Assets and Solvency Risk among State-Owned and Privately Owned Islamic Banks in Kurdistan

Abstract

The present study explores the nexus connecting asset management and solvency risk to uncover their influence on Kurdistan’s state-owned and privately owned Islamic banks’ efficiency. In that context, two ARDL models were estimated to make comparative examinations of the captured asset management and solvency risk circumstances on bank efficiency between 7 state-owned and 5 privately owned Islamic banks from 2000 to 2020. The results of the study uncovered that banks’ asset management strategies were instrumental in enhancing bank efficiency, especially during the 2008, 2014 and 2015 financial crises. The study findings upheld that solvency risks undermine the efficiency of both state-owned and privately owned Islamic banks. The effects of the 2008, 2014 and 2015 financial crises during the period in question were discovered as having restricted bank efficiency. This study, in its integrated efforts to isolate and compare the effects of the financial crisis between publicly held and privately owned Islamic banks, makes an important contribution to the field of Islamic banking. As a result of our study, some of the unvalidated hypotheses aimed at examining empirical relationships between bank efficiency and bank size are now empirically supported.