This study aimed to compare the financial performance of Islamic banks and conventional bank in the MENA region. This was undertaken through examining the influence of bank specific factors (represented by bank size, capital risk, loan intensity, financial leverage, credit risk, operating ratio and Z-score) and macroeconomic factors (represented by gross domestic product (GDP) and inflation) on banks’ financial performance (captured by return on assets (ROA) and return on equity (ROE)). The underlying aim is to demonstrate that the difference in operational models of banks has an effect on financial performance. The study analysed data obtained from Bankscope and Worldbank Databank for 108 banks comprising 35 Islamic banks and 73 conventional banks from 15 countries (Algeria, Bahrain, Egypt, Jordan, Iran, Iraq, Kuwait, Libya, Morocco, Oman, Saudi Arabia, Tunisia, Qatar, Yemen, United Arab of Emirates) for the period 2004-2014. Thus, the study examines the financial performance of the two banking types for the periods before, during, and after the 2007/2008 global financial crisis. A deductive quantitative data analysis approach from a positivist epistemological perspective was employed using two research techniques: multivariate linear regression and non-linear artificial neural network model. The study has found that there are significant financial performance differences that exist between Islamic banks and conventional banks in the MENA region based on the financial variables examined. In respect to the impact of the 2008 financial crisis on the banking types in the MENA region, the study suggests that the conventional banks were affected relatively more than Islamic banks. Further, the study has revealed that credit risk and Z-score are key determinants of banks’ financial performance in the MENA region. This suggests that effective credit and bankruptcy risk management could positively influence banks’ performance. An increased investment in fixed assets, however, affects mainly conventional banks than Islamic banks. Similarly, the influence of bank size applies more to conventional banks than Islamic banks in the MENA region. When comparing the results obtained using the artificial neural network to those obtained using the multiple regression analysis, the study found that overall, the explanatory power obtained using the artificial neutral network was relatively higher. With a focus on the GCC countries, the study reveals that Islamic banks suffered relatively more than conventional banks from the 2008 global financial crisis, contrary to the results for the MENA region as a whole. Further, in addition to credit risk and Z-score, the study results suggest that increased bank capitalisation (capital risk) has a positive effect on banking performance in the GCC countries. However, increased financial leverage and operating ratio significantly affected conventional banks, and not Islamic banks, in the GCC countries. Contrary to the MENA region, bank size in the GCC countries impacts Islamic banks more than conventional banks. The changes in GDP, on the other hand, was found to matter more in the GCC countries (than non-GCC countries) whilst inflation affects conventional banks only in MENA countries. Increase in loan intensity, however, was not found to significantly influence the banks’ performance.

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