Abstract
Purpose The primary objective of this article is to empirically examine the impact of bank-specific and macroeconomic factors, particularly environmental, social, governance (ESG) and financial technolgy (fintech) factors, on the financial sustainability of Islamic banks (IBs) and conventional banks (CBs). Design/methodology/approach Panel data are used on QISMUT plus three countries: Qatar, Indonesia, Saudi Arabia, Malaysia, United Arab Emirates, Turkey, Bahrain, Kuwait and Pakistan for the period from 2005 to 2022. A two-step system using the generalized method of moments (GMM) and panel-corrected standard error (PCSE) methods was employed. Findings The findings reveal that CBs exhibit greater financial sustainability persistence, while IBs demonstrate superior management efficiency, liquidity and stability. This distinction is attributed to IB’s Shariah-compliant structures, which foster stability through profit-loss sharing accounts and equity-based risk-sharing mechanisms. The study also finds that IBs achieve financial resilience more rapidly as they grow, supported by higher capital adequacy and liquidity coefficients. Furthermore, ESG adherence plays a more significant role in IBs, reflecting their alignment with socially responsible initiatives. Practical implications These findings have substantial implications for practitioners, policymakers, managers and academics, where they can capitalize on IB dominance by promoting and developing innovative Shariah-compliant financial products for both IBs and CBs. CBs should compete by providing Shariah-compliant financial products and opening Islamic Window-Financing. IBs’ risk management efficiency can help conventional bank managers incorporate equity financing and profit-loss sharing into their strategy. Originality/value We believe this is the first empirical study of Islamic and conventional banks on the financial self-sufficiency (FSS) indicator proxied as financial sustainability.