Risk And Profitability Measures In Islamic Banks

In this article, the writer effort to mensurate the public presentation of Islamic Banks which focuses on two Bankss in Sudan viz. Faisal Islamic Banks, Sudan ( FIBS ) and Tamadon Islamic Banks, Sudan ( TIBS ) . Harmonizing to this article, the deduction of bank ‘s graduated table on profitableness and hazard steps are based on the published information. The public presentation of both Islamic Bankss was measured based on the its profitableness and hazard for which the steps include the rate of return on assets ( ROA ) , the rate of return on equity ( ROE ) , the rate of return on investing sedimentations ( ROD ) , and the capital-assets ratio ( capitalisation ) . The ratios will so demo how efficaciously a bank uses its fiscal and existent investings to bring forth net incomes, the bank direction is utilizing stockholders ‘ investing efficaciously and the ability of the bank to vie for financess. While for the step of hazard of bank ‘s overall operation is captured by the volatility of the bank plus portfolio and the size of bank capital shock absorbers as reflected in capital ratio. The ROA and its variableness are combined with the bank ‘s capital ratio ( equity/asset ) to bring forth a hazard index ( RI ) . The consequence shows that FIBS and TIBS grew in size in nominal footings, their sizes declined in existent footings. There is a negative and statistically important relationship between size and the hazard index which implies that as the Islamic Bankss grow in size, the operating hazard decreases. This consequence strongly supports the intermediation theory, which confers a variegation advantage as size additions.

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Determinants Of Profitability in Islamic Banks: Some Evidence from the Middle East: Abdel-Hameed M. Bashir, 2003, Islamic Economic Studies Vol. 11, No. 1


A assortment of internal and external banking features were used to foretell profitableness and efficiency of the public presentation indexs of Islamic Bankss across eight Middle Eastern states between 1993 and 1998. In general, our analysis of determiners of Islamic Bankss ‘ profitableness confirms old findings. The consequences from commanding for macroeconomic environment, fiscal market construction, and revenue enhancement indicate that high capital-to-asset and loan-to-asset ratios lead to higher profitableness. Harmonizing to consequence, it indicates that equal capital ratios and loan portfolios play an empirical function in explicating the public presentation of Islamic Bankss. A prompt supervisory action may used by Bank regulators as an grounds. Besides that, the consequences besides indicate the importance of consumer and short-run support, non-interest gaining assets, and operating expenses in advancing Bankss ‘ net incomes. A high non-interest borders will convey a high consumer and short-run support to entire plus ratio. The Bankss who earn high net incomes may be appropriated in footings of higher rewards and wages or investing in dearly-won engineering used by these Bankss. The Islamic banking market appears to be hold in the disbursal penchant behaviour. Besides that, Islamic Bankss ‘ profitableness seems have been contributed significantly by foreign ownership. The effects of revenue enhancements indicate that the public presentation of Islamic Bankss are distorted by fiscal repression. The negative consequence of the modesty ratio will uncover the chance cost of keeping militias. In fact, since sedimentations in Muslim Bankss are treated as portions, and consequently their nominal values are non guaranteed, keeping militias hurt Muslim Bankss and their depositors. Besides that, favourable macroeconomic environment seems to excite higher net incomes. A strong positive impact on the public presentation steps which has consequence in higher GDP per capita and higher rising prices rates.

The Performance of Malaysian Islamic Bank During 1984-1997: An Exploratory Survey: Abdus Samad & A ; M. Kabir Hassan, 1999, International Journal of Islamic Financial Services Vol. 1 No.3


The article analysing the public presentation of Islamic Bank which focuses on one bank in Malaysia viz. Bank Islam Malaysia Berhad ( BIMB ) . The rating of public presentation includes profitableness, liquidness, hazard and solvency ; and community engagement for the period 1984-1997 which apply the fiscal ratios in mensurating these public presentations. The research discover that BIMB is comparatively more liquid and less hazardous compared to a group of 8 conventional Bankss. The comparing between BIMB and a group of conventional bank on return on assets ( ROA ) and return on equity ( ROE ) does non demo statistically any difference in public presentation. However, Islamic bank appears to be statistically more liquid at least in cash-deposit step. The mean cash-deposit ratio of BIMB is higher compared the conventional bank. In hazard and insolvency steps found that BIMB hazard has increased and it is statistically important in debt-equity ( DER ) and equity multiplier ( EM ) where both ratios are increased. However, Islamic bank is still less hazardous and more solvent measured in DER, DTAR, EM and LDR as shown in the consequence. The difference in hazard measured in debt-equity is statistically important. Harmonizing to consequence, the agencies of Debt to entire plus ratio ( DTAR ) , loan-deposit ratio ( LDR ) , and equity multiplier ( EM ) of the Islamic Bank are lower compared to a group of conventional Bankss which in other word, it is non statistically important. Sing to BIMB ‘s community committedness and take parting in authorities undertaking measured in Government Bond Investment ( GBD ) , Long term loan ratio ( LTA ) and Mudaraba-Musharaka Ratio ( MM/L ) , it indicates that there has been no difference in public presentation over the two periods between 1984-1989 and 1990-1997. The ANOVA trial has besides supports this determination as the F-value is statistically undistinguished.

Muslim Banks ‘ Profitability in an Interest Rate Cycle: Anouar Hassoune, 2002, International Journal of Islamic Financial Services, Vol.4, No.2.


Net income and loss sharing ( PLS ) is an of import rule in which Islamic finance relies on between stakeholders taking portion in a hazardous economic activity. In fact, such an Islamic bank does non portion its “ net incomes ” with the depositors who accepted the investing hazard which defined as the wealth transferred to stockholders, but portions an sum of wealth one can name an “ income before cost of support ” ( IBCF ) . The Muslim Bankss has managed to smooth their profitableness by utilizing return on equity ( ROE ) to mensurate it. In theory, an Islamic bank is efficaciously in a place with the buffering function played by net income and loss sharing in order to do its profitableness less volatile over the rhythm. Furthermore, the empirical grounds slopes to uncover that Muslim Bankss are surely more profitable than their conventional equals which basking the same balance sheet construction. The anterior ground is that Islamic Bankss has benefited from a market imperfectness where the handiness of big sums of non-remunerated sedimentations in their books which well decrease the cost of support. Finally, the Islamic fiscal rules are non the Panacea for all bankers in the Islamic universe because they are constrained by several recurrent failings in footings of liquidness, concentration hazards and operational efficiency.

Performance of Islamic and Mainstream Banks in Malaysia: Saiful Azhar Rosly and Mohd Afandi Abu Bakar, 2003, International Journal of Social Economics Vol. 30 No. 12


The writers attempt to associate the public presentation of Islamic Bankss and its mainstream Bankss in Malaysia. Islamic banking strategy ( IBS ) Bankss are able to use bing operating expenses carried by mainstream Bankss since in the probe found that they have recorded higher return on plus ( ROA ) . Alternatively, this survey has shown that mainstream banking performed better than IBS Bankss. This is because IBS Bankss have yet to develop the larger market size, long-run experience and fiscal deepening factor. It can be proven in the plus use ( AU ) and interest/investment border which are higher than IBS Bankss. Although the IBS Bankss lower their operating expense disbursals, the higher in ROA ratio does non connote efficiency. It is besides inconsistent with their comparatively their low plus use and investing border ratios. This determination confirmed our contention that Islamic banking that thrives on interest-like merchandises ( recognition finance ) is less likely to outshine mainstream Bankss on efficiency footings. In this article, the writers have used the ROA ratio every bit good as return on sedimentation ( ROD ) , net income border ( PM ) , net runing border ( NOM ) , and runing efficiency ratio ( OER ) will be inaccurate for IBS Bankss. However, they are still a dependable step of public presentation for BIMB and Bank Muamalat.


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