Islamic Banks Profitability in an Interest Rate Cycle by Ano
From HodHood
Contents
Top 20 FREQUENT WORDS
islamic 103 banks 63 conventional 28 banking 24 financial 23 international 20 journal 19 services 17 profitability 16 assets 15 vol 13 ibcft 12 profit 12 cycle 11 depositors 11 funding 11 graph 11 model 11 profitable 11 rkc 11 rlc 11
DOCUMENT KEY POINTS
- the asset side of profit sharing is not directly the subject of the following study which lays particular stress on the liability side ie an islamic bank s obligation to share its profits with its depositors or at least those of its depositors who accept to keep their money in remunerated investment accounts and not in non profit bearing current accounts
- in section the theoretical model s results are subject to a calibration based on empirical data which allows the introduction of some cyclicality in interest rates and the observation of the behaviour of the two banks respective roes
- expressing return on equity for the two banks the conventional bank its net profit can be expressed in the following way rkc t
- conventional bank equity k f non equity liabilities l f assets a leverage non interest expenses n return on equit rkc t gross return on assets r income before cost of ibcft r funding cost of fundin rlc t
- to achieve that a linear regression is implemented on two series of data on the one hand the average returns on earning assets for saudi commercial banks and on the other hand refinancing costs as a percentage of non equity liabilities for the same saudi banks
- the principle of calibration in principle calibration consists of attributing consistent and plausible numeric values to certain parameters of the model in order to make them stick as closely as possible to the observed reality
- this technique plays the role of a cushion or an insurance against cyclicality in returns which the conventional bank cannot rely on because it has to pay interest charges which are less flexible
- such a smoothing effect comes from the ability of the islamic bank to absorb shocks on assets returns through profit and loss sharing
- the following graph represents average roes of islamic and conventional commercial banks in three of the six countries of the gulf cooperation council gcc for the years and
- if remunerated deposits represent small amounts of total deposits at the islamic bank will be small and shareholders will capture a high portion of the ibcf
- making islamic banks a general model for an entire banking industry in a given country would certainly lead the vast majority of depositors to ask for investment deposits with returns close to those prevailing in non islamic markets and the comparative advantage of islamic banks ie cost of funds would consequently vanish
- on the other hand islamic banks lose on the grounds of liquidity assets and liabilities concentrations and operational efficiency what they tend to win in the field of profitability
- nevertheless islamic banks ability to smooth their return on assets by absorbing shocks remains a positive element particularly in a banking sector that is characterized by its systemic nature where the collapse of one entity could spur contagion to the whole industry
- l profitability of islamic pls banks competing with interest banks problems and prospects journal of research in islamic economics
- la finance islamique fondements theorie et realite centre de recherche et developpement en economie cahier universite de montreal canada
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DOCUMENT WORD ANALYSIS
Main Category
- AlHuda Material\islamic banking
KeyWords
islamic banks banking financial finance investment conventional institutions funds risk financing deposits assets services management international countries equity profit products
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DOCUMENT REFERENCES
Number of Pages
13
Published Date
2106-02-07 09:28:15
