Purpose – Islamic banking is a viable sustainable banking model that has shown resilience to financial crises. The aim of this research is to design a consensus-based ethical and market-driven corporate governance index (CGI) to boost financial performance and ensure compliance with Islamic rulings. Design/methodology/approach – The design of the CGI is the outcome of the feedback obtained from a cross-country survey to measure bank efforts in enhancing corporate governance (CG) throughout the ten-year period of 2001-2011. The CGI is divided into six core CG themes and 40 sub-themes. Findings – First, the results of the multiple regression analysis show a consistent positive relationship between CG and financial performance metrics. Second, the authors detect misaligned compensation structures for directors. Third, poor governance leads to higher risk exposures. Research limitations/implications – CG in Islamic banks is yet an evolving discipline and infant practice. This research aims to introduce a CGI that should be updated and improved as the discipline evolves. Practical implications – The research concludes by proposing a CG paradigm. The outcome of the research could also be of use to both Islamic banks and to the rapidly growing sustainable banking sector in designing a similar CGI and CG model incorporating the ethical features of sustainable finance. Social implications – The core ethos of Islam are: avoiding the exploitation of the needy, avoiding excessively risky transactions, avoiding unethical transactions and justice, equity and income redistribution. If properly applied, Islamic banking will display all features of sustainable finance as well as enhance social welfare. Originality/value – To the best of the authors' knowledge, this is the first CGI that is based on an ethical and all-inclusive input of all stakeholders.
This research constructs a two-stage model to gauge the impact of Basel III on GDP growth rates in 47 emerging market economies (EMEs). The first stage detects a strong relationship between compliance with Basel III capital, liquidity and leverage ratios on the one hand and credit performance on the other hand. The second stage uses multiple regression analysis to estimate the direct and the indirect transmission effects. The results reveal that implementing Basel III would hamper growth by more than 3 percentage points, and that the recovery period from the shock requires 3 years and 3 quarters. Advanced EMEs are the most adversely impacted in comparison to secondary and frontier emerging markets. The paper concludes by proposing a set of recommendations and reforms at various levels: the Basle Committee for Banking Supervision, domestic regulators, national and regional trade unions of banks, and individual banking institutions.
This paper investigates the transmission of monetary policy to the real economy after the adoption of bank reforms in emerging market economies (EMEs). The Egyptian case is empirically studied to test the efficacy of the banking sector as a transmission agent subsequent to the banking reforms that extended from 1991 to 2009. The structural vector autoregressive methodology is employed to investigate the impact of the interest rate and foreign exchange rate channels on output and inflation. The results of the study reveal several interactions among the two types of channels. Second, interest rate intervention proves to have substantial effects on output, but less on inflation. Third, exchange rate intervention has some effects on inflation, but less on output. Thus, both transmission channels have showed superior effectiveness after the banking reform. This indicates that the Central Bank of Egypt should not continue to depend on the interest rate channel alone, but has to additionally utilize the exchange rate channel in order to successfully achieve inflation targeting that has been its prime goal since 2003 and even more after the global food crisis of 2007/8. This ruling could prove functional when conducting monetary policy in EMEs of similar circumstances to Egypt.
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