Depositor Characteristics and the Performance of Islamic Banks

Abstract

We investigate the reasons for the growing demand for Islamic banking internationally, and examine the relative economic performance of Islamic banks compared with conventional banks in managing their capital buffers and liquidity. Using data for the period 2000–2012 for 104 Islamic and 619 conventional listed and non-listed banks spread across 22 countries with both these types of banks, and using standard statistical methodology for archival data analysis, we find that religious, political, and socio-legal factors, rather than economics alone, play key roles for Islamic banks in attracting depositors. Governed by Islamic ( Shariah) laws, these banks cannot lend money and charge interest. Depositors are not debt holders as in conventional banks, but investment partners that share in the risk, or profit-loss sharing (PLS), with the bank. As Islamic banks have no debt holders, and depositors self-select to bank with Islamic banks, economic theory suggests a reduced need for excessive (less productive) liquidity buffers. However, we find that Islamic banks maintain significantly higher liquidity buffers than their conventional counterparts. A main contribution of our study is to highlight the fact that standard economic measures alone may be inadequate to assess the performance of Islamic banks.

Satisfaction of Pakistan’s Islamic banking system during the COVID-19 pandemic Logistic model-based identification of the determinants to improve customer

“…Islamic financial institutions provide a variety of interest-free products; therefore, they are involved with their customers’ business transactions by sharing profits and losses (Alharthi, 2016). The Islamic banking system acts as a supervisor of depositors’ resources and can use them to generate profit for its customers (Visser, 2019; AlAbbad et al , 2020). Unlike Islamic banks, conventional banks mainly borrow, lend and charge interest on such funds (Alharthi, 2017a).…”

Apakah rasio keuangan perbankan berdampak pada penilaian kesehatan bank syariah?

“…Sementara kinerja keuangan bank syariah secara keseluruhan mungkin tertinggal dari bank konvensional, pertumbuhn mereka hanya dapat dikaitkan dengan fakta bahwa mereka melayani kebutuhan spesifik dari sektor masyarakat tertentu. Oleh karena itu, tidak tepat jika hanya menggunakan kinerja keuangan standar untuk mengevaluasinya atau menjelaskan pertumbuhan dan keberhasilannya (Abbad et al, 2021). Selain itu, penelitian ini juga mampu memberikan wawasan tentang penilaian kesehatan bank, dimana penelitian ini sangat penting dalam meletakkan dasar regulator untuk menekankan manajemen risiko di Industri perbankan.…”

Assessing the performance of Islamic banks in Malaysia based on balanced scorecard (BSC) measures and Shari'ah guidelines compliance

“…(2019) analyzed the financial performance of Islamic and conventional banks in Malaysia within the scope of a dual setting arrangement in the Malaysian financial industry where performance evaluation of both types of banks relies on ratio analyses which include return on equity, return on assets, earnings per share and debt ratio from 2012 to 2016 using t -test and correlation analysis where the results indicate that the Malaysian conventional banks performed better than Islamic banks which calls that Islamic banks should further improve their performance to become more competitive in the current environment for the financial industry. Al-Abbad et al (2020) investigate the reasons depositor characteristics and the performance of Islamic banks using data from 2000 to 2012 for 104 Islamic and 619 conventional listed and non-listed banks spread across 22 countries using standard statistical methodology for archival data analysis where the findings revealed that Islamic banks maintain significantly higher liquidity buffers than their conventional counterparts. Al-Hawatmeh (2020) undertakes a study on the possibility of using the BSC performance evaluation system in evaluating the performance of internal control in Jordanian commercial banks where the researcher designed a questionnaire and distributed it to managers, internal managers and employees in Jordanian commercial banks and out of the 450 questionnaires distributed, recovered 370 with adoption to be valid for statistical analysis purposes (345) at a rate of 77%.…”

“…Empirically, it is in line with Choong et al (2012), Hamedian (2013), Hazman et al (2018), Basri et al (2019) and Sulub et al (2019), all in Malaysia. Moreover, Usman and Khan (2012) in Pakistan, Yahaya and Lamidi (2015) in Nigeria, Kamarudin et al (2017) in selected Southeast Asian countries, Al-Alawi (2018) in Bahrain, Al-Abbad et al (2020) across 22 countries and Al-Hawatmeh (2020) in Jordanian. Nonetheless, it is in contrast with the findings of Ullah (2014) in Bangladesh, Abofaied (2017) and Filfilan (2020) in the GCC countries which found that the performance of Islamic banks is not encouraging.…”

“…compared the financial performance of six Islamic and six conventional banks in Malaysia from 2005 to 2016 where eight financial ratios were analyzed namely; bank size, leverage, return on average assets, return on average equity, lending intensity, total customer deposits, skills utilization and banks' liquidity using an independent t-test where the results indicate that conventional banks are larger, more risky and profitable than Islamic banks Sulub et al (2019). analyzed the financial performance of Islamic and conventional banks in Malaysia within the scope of a dual setting arrangement in the Malaysian financial industry where performance evaluation of both types of banks relies on ratio analyses which include return on equity, return on assets, earnings per share and debt ratio from 2012 to 2016 using t-test and correlation analysis where the results indicate that the Malaysian conventional banks performed better than Islamic banks which calls that Islamic banks should further improve their performance to become more competitive in the current environment for the financial industry Al-Abbad et al (2020). investigate the reasons depositor characteristics and the performance of Islamic banks using data from 2000 to 2012 for 104 Islamic and 619…”