Bank Lending during the COVID-19 Pandemic: A Comparison of Islamic and Conventional Banks

Using a sample of 421 banks from 17 countries, we find that lending growth of Islamic banks and conventional banks decreased during the initial phase of the COVID-19 crisis. However, the decrease is significant for conventional banks only. In fact, credit growth for Islamic banks grew around 2.5% faster than that for conventional banks, especially in countries with a macroprudential framework in place in the year leading up to the crisis. Our evidence remains unchanged with alternative empirical methodologies, definitions of bank lending, variations in precrisis periods, and proxies for the severity of COVID-19 in different countries.