There are many different ways to look at how the oil price drop will affect the banking systems in countries heavily dependent on oil revenues for their foreign earnings. One high level view way to do so is to look at the money supply and the degree to which the foreign earnings from oil exports end up increasing the money supply. Not all of the earnings from oil end up in the economy, but a decrease in oil revenues will impact the local economy and be picked up by changing trends in different measures of the money supply.
Looking at the data, recall that the oil price was falling from the beginning of the third quarter but did not begin the precipitous decline until October and has fallen dramatically since then. Despite only having the beginning captured in the money supply data available today, the liquidity being added to the banking system (in the form of deposits—current accounts in M1 and time deposits in M2—decreased dramatically as the price of oil fell). In October, the growth in M1 rebounded a bit while both M0 (currency) and M2 (M1 plus time deposits) fell at a faster pace.
The impact on the banking system shouldn’t be different for conventional banks or Islamic banks unless there are differences in how their balance sheets are set up. In the case of several Islamic and conventional banks in the UAE, there is a difference: Islamic banks saw faster growth in loans and deposits in the first nine months of 2014, although the difference was marginal for loans. More significantly for the impact of a further fall in liquidity is the differences between the loan-to-deposit ratio which is much lower for Islamic banks than conventional.
These data together indicate that Islamic banks could see less of an impact in terms of liquidity squeezes than conventional banks in economies where oil is a significant part of the economy. There could be many different reasons that have nothing to do with how Islamic banks operate but the implication could be that Islamic banks become perceived as being more stable than conventional banks.
One explanation for the different impact of Islamic and conventional banks could be that conventional banks are more directly used to recycle oil proceed through the economy. For the most part, this is probably caused more by the respective sizes of conventional financial institutions and historical inertia (the first Islamic banks were only founded in the 1970s and recently were only a source of rapid growth since about 2000).
As Islamic banks grow as a share of the overall banking system (and something to consider in other GCC countries with a larger share for Islamic banks), this additional stability is likely to be eroded and will provide additional impetus for governments to use Islamic banks equally with conventional banks to recycle future oil liquidity. It also serves as a reminder that as market share increases, so will the need for changes (including development of new liquidity management products) to reduce the liquidity risk facing Islamic banks.