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Research Report
In partial fulfilment of the requirements for the
Masters of Business Administration Degree
Are Islamic banks more stable than conventional banks? A
comparative analysis based on financial performance.
By
Muzaffer Ebrahim
MBA Full Time 2010
10 December 2010
Supervisor: Stephanie Giamporcaro
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CONTENTS
I. Introduction ......................................................................................................................... 6
A. Background .................................................................................................................. 6
B. Research problem and objective .................................................................................. 8
C. Assumptions and Ethics ............................................................................................... 8
D. Important note .............................................................................................................. 9
II. Literature review ............................................................................................................... 10
A. Introduction ................................................................................................................ 10
B. Major differences between conventional and Islamic banking systems .................... 10
C. Principles of Islamic finance ..................................................................................... 12
D. Arguments against Islamic banking and challenges of Islamic banking ................... 16
E. The last financial crisis .............................................................................................. 18
F. Measurement of financial performance in the banking industry ............................... 22
G. Conclusion ................................................................................................................. 23
III. Methodology ..................................................................................................................... 24
A. Research approach and strategy ................................................................................ 24
B. Research Design, Data Collection and Research Instruments ................................... 24
C. Sampling .................................................................................................................... 26
D. Data analysis methods ............................................................................................... 28
E. Limitations ................................................................................................................. 32
IV. Research Findings, analysis and discussion ..................................................................... 33
i. When performing a trend analysis, is there a significant deviation in performance of
the ROE and ROA of the two banking systems in the last recession? ........................ 34
ii. Does the standard deviation and the rolling standard deviation increase between the
two banking system‟s ROE and ROA when faced with a recession?.......................... 40
iii. Is there a negative correlation and negative rolling correlation in the financial
performance of the two banking systems during the last recession? ........................... 46
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Research criteria ............................................................................................................... 50
Research limitations .......................................................................................................... 51
V. Research conclusions ........................................................................................................ 52
Question i .......................................................................................................................... 53
Question ii......................................................................................................................... 53
Question iii ....................................................................................................................... 54
Conclusion to the research problem.................................................................................. 54
VI. Future research direction .................................................................................................. 55
VII. Bibliography ..................................................................................................................... 56
VIII.Appendices ....................................................................................................................... 59
Appendix 1 - Definitions .................................................................................................. 59
Appendix 2 – Original sample of banks selected ............................................................. 60
Appendix 3 – Aggregation of ROE & ROA percentages for Islamic banks .................... 61
Appendix 4 – Foreign currency translation of conventional banking financial data ........ 65
Appendix 5 - Foreign currency translation of Islamic banking financial data ................. 69
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Acknowledgements and Declaration
This report is not confidential and may be freely used by the University of Cape Town,
Graduate School of Business.
I would like to thank:
Dr Stephanie Giamporcaro for her valuable advice, patience and support during this
research process;
Sean Gossel for his input and assistance during the quantitative analysis phase of the
research process;
My colleagues, friends and family for their support , inspiration and encouragement;
Finally, my wife, Amina, for being so supportive not only during this research report
but for the entire MBA experience.
I certify that excepted as noted above, this report is my own work and all references used are
accurately reported.
Signed:
Muzaffer Ebrahim
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Abstract
The global financial and economic recession that hit the world in 2008 was described by
many commentators as a banking crisis. A crisis that emerged from a number of highly
complex transactions, lacked transparency and further fuelled by speculative behaviour. It
was this crisis in which nearly 45% of the world‟s wealth disappeared within a few months.
Even though the last recession was identified as a „banking crisis‟, there has been many
claims that banks following Islamic banking principles were not affected. It was argued that
this banking system was not only based on commercial decisions but also on ethics and
religious requirements, thus making the Islamic banking system more resilient to economic
downturns.
Extensive research has been conducted on the stability of Islamic banking systems, whose
principles are based on trade, profit / risk sharing and interest free banking. However, very
few studies have been done analysing this stability in the last recession. In this research a
quantitative study was realized in which the performance of the Islamic banking system was
compared to the conventional banking system. The study tracked the performance of the
banks for a period of seven years, with particular attention being placed on the period of the
last global recession.
The study found that in times of severe economic difficulties, which the last recession
presented, the financial performance of Islamic banks are more resilient. The study further
found that over the recessionary period the standard deviation of the financial performance of
the Islamic banks were less affected than the conventional banks. Furthermore, the
correlation of the financial performances went from nearly perfectly positive before the
recessionary period to a nearly perfectly negative correlation during the recessionary period.
Key words: Islamic banking, banking crisis, stability, interest free banking, recession,
performance measures.
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I. INTRODUCTION
A. Background
“Today we have reached a tipping point which leaves us with only one choice: change or face
the continued decline and misery.”
- Chairman – World Economic Forum
The above comment was made by the chairman of the World Economic Forum at the World
Economic Forum Annual Meeting in January 2009 following the financial crisis caused by
the last recession. Crotty (2008) argues that the last recession was caused by highly complex
and risky debt based products being sold and packaged as low risk investments. He further
states that the introduction of these products into the derivative market exponentially
increased the riskiness and reduced the transparency surrounding these products. The
revelation of the true riskiness related to these products resulted in panic and the collapse of
these financial products. What followed was the global financial crisis.
The question that results from the above account of the global financial crisis and the
statement made by the chairman of the World Economic Forum is that surely there should be
a better and a more conservative way of approaching the world of finance. An alternative
may be Islamic banking. As Usmani (2009) states, there have been a number of articles
claiming that Islamic banks were not affected by the “horrors of the crisis”, due to the
adoption of Islamic principles. The researcher therefore intends to study the differences in
stability / variability in the financial performance of the two banking systems over the
preceding seven years, from 2003 to 2009. Particular attention will be given to the relative
performances during the last recession in order to measure the volatility in the performance
of conventional banks and Islamic banks when faced with tough economic times.
As an introduction Ebrahim et al. (2001) states that Islamic finance is intertwined with the
religion of Islam which impacts finance in two ways:
1. Islam aims at building a socio-economic order based on justice and considers
economic activity as a means to an end and not an end in itself.
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2. Islam is deeply concerned with the problem of economic development, but treats this
as an important part of a wider problem, that of total human development. It deals
with all aspects of economic development but always in the framework of total human
development and never in a form divorced from this perspective
The core belief of Islamic banking stems from a divine injunction against the acceptance of
interest between buyers and sellers of capital resource. The extract below is one of the verses
from the Quran which prohibits the use and dealing in interest:
Yusuf Ali (1991) verse 2:275:
“Those who devour usury (riba) will not stand except as stands one whom the Evil One by
his touch hath driven to madness. That is because they say: „trade is like usury‟, but Allah
(God) hath permitted trade and forbidden usury”
The above is an extract from the Quran in which two fundamental principles of Islamic
banking are highlighted. Firstly, the use of usury (interest) is strictly prohibited according to
the Islamic belief. Secondly, Muslims are encouraged to trade and avoid the use of interest
even though there may „appear‟ to be no difference between interest and trade based
transactions (El-Gamal(2000)).
Other principles of the practice of Islamic banking are the concepts of profit and risk sharing,
and the treatment of money as only a means of exchange and not as a commodity to be
traded. An example of the treatment of money as a commodity is the issuance of interest
bearing loans; money here is being treated as a commodity for which a return is received.
In trying to understand the estimated market size of Islamic banking, Smolo (2010) states
that today Islamic finance attracts both Muslim and non-Muslim market participants. At
present, there are more than 300 Islamic financial institutions worldwide and the market for
Shari'ah-compliant Islamic financial products is estimated to be between US $800 billion to
$1 trillion. Shari'ah-compliant assets grew to $951bn by the end of 2008, which is up 25%
from $758bn in 2007 and up about three-quarters from $549bn in 2006. The Islamic finance
industry is growing at 15-20 per cent per annum a growth rate that is much greater than the
growth rate of the traditional financial industry.
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Smolo (2010) further states that Islamic banking is most developed in Iran, Malaysia and the
Middle East. However, Islamic finance is making inroad in other countries as well, such as
Pakistan, Bangladesh, Indonesia, Turkey, Sudan, Egypt, Jordan and Syria.
B. Research problem and objective
Islamic banking as an industry is very much in its infancy when compared to the well
established conventional banking system, with Dubai Islamic bank being the first fully-
fledged Islamic bank being established in 1975. Despite its short history as a formalised
industry there have been many claims that this system is more resilient than the conventional
system.
The researcher proposes to study the financial performance of a selected number of Islamic
and conventional banks in order to understand the impact of economic instability on the
results of the two banking systems. A descriptive quantitative research approach will be
adopted to either prove or disprove the claims of many Islamic banking institutions on
whether their financial performance was affected by the last recession. Leedy et al. (2010)
defines descriptive quantitative research as research that involves identifying the
characteristics of an observed phenomenon or exploring the possible correlation between two
or more phenomena. The proposed research therefore meets this definition.
The financial performance of the banks will be analysed using two key performance
indicators (KPI), namely Return on Assets (ROA) and Return on Equity (ROE). This report
anticipates investigating the issue using trend analysis as well as measuring the standard
deviation and correlation between the two systems. By testing these relationships it is
anticipated that the following questions will be answered:
i. When performing a trend analysis, is there a significant deviation in performance
of the ROE and ROA of the two banking systems in the last recession?
ii. Does the standard deviation and the rolling standard deviation increase between
the two banking system‟s ROE and ROA when faced with a recession?
iii. Is there a negative correlation and negative rolling correlation in the financial
performance of the two banking systems during the last recession?
C. Assumptions and Ethics
Being a Muslim I believe Islamic finance to be the more viable and reliable banking option. I
therefore have a bias in this regard. In order to remain neutral I have therefore decided to
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undertake a quantitative rather than a qualitative study in order to arrive at my research
conclusion.
Furthermore, the views expressed in this research report may be disputed by some Muslims,
who challenge the authenticity of some religious scriptures. The researcher believes the views
expressed in this research report are those held by the majority of Muslims globally.
The researcher has assumed that the reader will have extensive knowledge regarding the
principles and practices of the conventional banking system and will therefore only
concentrate on the differences between the Islamic and the conventional banking systems. A
detailed account of the principles of the Islamic banking system will be dealt with.
Some of the larger Islamic banks are privately owned. The access to the financial information
of the banks will be limited. The selection criteria of Islamic banks therefore include the
availability of financial information. Furthermore certain countries, such as Iran, do not make
their financial information freely available and therefore banks falling in these countries were
not available for selection.
The financial data obtained from the selected banks were all recorded in the reporting
currency of the country in which the bank resides. An exercise was therefore performed to
translate the financial data into US Dollars. The translation was done at the spot rate at the
end of each period.
Leedy et al (2010) states that most ethical issues in research fall into one of four categories:
protection from harm, informed consent, right to privacy, and honesty with professional
colleagues. The quantitative research that was conducted was done using publicly available
financial information. No ethical concerns as noted in the above four categories has arisen or
is likely to arise.
D. Important note
The principles of Islamic banking are governed by the Shariah. These laws have been
formulated from the Quran (Muslim‟s holy book) and the Hadith (saying and practices of the
Prophet Muhammad (S.A.W.)). At times the researcher will quote from these sources. The
researcher understands that the University of Cape Town is a secular institution and the
inclusion of these religious sources should not be viewed in the light of promoting religion
but rather to strengthen an argument or understand a principle.
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II. LITERATURE REVIEW
A. Introduction
The research that was conducted required many different avenues to be explored to gain an
understanding of the context in which this research is being conducted. The key words from
the hypothesis that has been set are Islamic banking, conventional banking, recession,
stability and measurement of performance. I will be addressing all of these areas and the
literature review will be structured as follows:
B – Major differences between the conventional and Islamic banking systems.
C – Principals of Islamic finance.
D – Arguments against and challenges of Islamic banking.
E – The last financial crisis.
F – Measurement of financial performance in the banking industry.
The above proposed structure firstly introduces the two banking systems before analysing the
principles and weaknesses of Islamic finance. Thereafter the research is contextualised by
addressing the causes and outcomes of the last financial crisis. Finally the literature review is
then concluded by analysing financial performance tools in the banking industry. In
addressing the above, all major variables in my hypothesis were addressed as well as setting
the context to the research.
B. Major differences between conventional and Islamic banking systems
Fundamentally the major difference between the two banking systems is the role that interest
plays within the particular banking system. As mentioned in the research assumptions, the
researcher has assumed extensive knowledge of the principles and practices of the
conventional banking system and has only presented a high level overview of the
conventional banking system. When analysing the conventional banking system the
following two banking patterns are used, commercial banking and universal banking.
Commercial banking is based on a pure financial intermediation model whereby banks
borrow from savers and on-lend it to individuals requiring finance. The profit margin earned
by these banks is the difference between the borrowing and lending rates. As a result of the
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fractional reserve system, derivative deposits are produced, allowing for the bank‟s lending
capacity to be multiplied. Furthermore, commercial banks are restricted from trading and are
prohibited from owning significant equity; the operations of the lender are therefore not
needed to be understood by the bank. This increases the risks associated with the loan. (Al-
Jarhi & Iqbal (2001))
Conversely, universal banks are allowed to hold equity, which allows for them to be better
equipped to understand the lender‟s business. Economists therefore prefer this type of
banking as it is considered to be more efficient.
(Humayon & Presley, 2003) states when seeking for an economic system based on fairness
and justice, Islam stipulates that prohibition of interest must be established. All income must
be determined by the supply of work effort associated with the factors of production. If
money is lent for interest then capital is augmented without any effort. Work effort is defined
to include the taking of risk in whatever project that money is invested. (Humayon & Presley,
2003) further states that there are four arguments that are used to justify the prohibition of
interest, some of which are also a feature of western literature. First, interest as a reward for
saving is not considered to have any moral foundation or justification. Second, abstinence
from consuming out of present income is not regarded as being sufficient reason to merit a
financial reward. Third, there is a distinction between money and capital; money has the
potential to be capital, however this requires risk taking and the knowledge to bring factors of
production together in order to make a profit. Fourth, it is fairer for both the creditor and
debtor as they both share in profits and losses.
Islamic banks are closer related to the universal model as they are allowed to provide finance
through a multitude of modes including taking equity. The principles of Islamic finance are
included in section C, however the table below highlights the major differences between the
Islamic and conventional banking systems. (Al-Jarhi & Iqbal (2001) & Mirakhor (1997))
Major differences between Islamic and conventional banking system
Conventional System Islamic System
Money is a product in addition to being a
medium of exchange and store of value.
Real assets are a product. Money is merely a
medium of exchange.
Time value of money is the basis of charging
interest on capital.
Profit on exchange of goods and services are the
basis for earning profit.
Interest is charged even if the organisation suffers Loss is shared when organisation makes a loss.
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a loss. Thus no concept of sharing losses.
No agreement for exchange of goods and services
are made when making financial arrangements.
Agreement of exchange of goods and services is
a necessity in most financing contracts.
Due to the non existence of goods and services
behind the money while distributing funds, the
expansion of money takes place, thus creating
inflation.
Due to the existence of goods and services no
expansion of money takes place thus no inflation
is created.
Bridging finance and long term loans are not
made on the existence of capital goods, but rather
based on feasibility studies and credibility.
Agreements are made after validating the
existence of capital goods.
Debt financing gets advantaged due to the interest
deductibility from taxable profits. This causes a
huge burden of taxes on salaried employees,
which ultimately affects people‟s disposable
income. This decreases the real gross domestic
product (GDP).
Sharing of profits provides for extra tax to the
federal government, which minimises the tax
burden of employees. People have more
disposable income thus increasing the real GDP.
Large range of financial products to meet every
need of the consumer.
Limited range of financial products and the
introduction of new products are extremely slow
due to the required approval procedures.
Large portfolio of short and long term financial
products to meet the needs of the consumer.
Due to the preference of secured, low return but
liquid investments, Islamic banking has a bias
towards short term financial products.
C. Principles of Islamic finance
The principles of Islamic finance are rooted in the 6th
century AD in the time of the Prophet
Muhammad (SAW). These principles are therefore drawn from the Quran and Sunnah
(teachings of the Prophet) in which interest based finance systems are explicitly prohibited
and condemned (Kahf & Khan (1988)). Due to the stringent nature of the principles, all the
jurists are in agreement with them and the literature available is very consistent in its
interpretation. The practice of Islamic finance involves modes of finance that do not involve
the use of interest. Below are a few extracts from the Quran that specifically relate to the use
of interest and the condemnation thereof:
Yusuf Ali (1991) – verses [2:278 - 279]:
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278: O ye who believe! Fear Allah (God) and give up what remains of your demand in usury,
if ye are indeed believers.
279: If ye do not, take notice of war from Allah (God) and His Messenger: but if ye turn
back, ye shall have your capital sums, deal not unjustly, and ye shall not be dealt with
unjustly.
To a reader that is not familiar with the verse 279, it may appear that this verse‟s objective is
to protect the poor debtor from the rich creditor. However, the interpretation is deeper than
this, it should be read as follows; “if you turn back, then you should collect your principle,
without inflicting or receiving injustice, where both an increase and decrease of the amount
returned relative to the amount lent would be considered injustice” El-Gamal (2000)
The Quran does not only prohibit interest but also prohibits Gharar sales. Gharar literally
translated means risk and uncertainty. A Gharar sale is therefore the sale of a probable item
whose existence or characteristics are not certain, due to the risky nature which makes the
trade similar to gambling. (El-Gamal (2000)) An example of a Gharar would be the sale of
unborn animals, the catch of a diver on his next dive, unripe fruit, etc. The rationale behind
the prohibition is that the buyer pays the fixed amount, however he does not know what he is
paying for. The most common form of Gharar found in today‟s economy is the trading of
derivatives. It should be noted that not all derivatives are prohibited, only those that meet the
criteria stipulated above. (Alsayyed, 2009) states that derivatives with the option of unilateral
deferment on existing assets or future assets concur with the Shariah principles. However,
derivatives that defer obligations by both parties to a future date are considered tantamount to
debt exchange without an underlying asset transfer, which makes this type of transaction not
permissible in Islam.
Permissible modes of finance
Before elaborating on the different modes of finance, there is a need to pre-empt the reader‟s
reaction as in many ways Islamic finance is very similar and at times identical to that of
conventional finance. The area of focus should not be on how it is similar but rather focus
should be placed on how it is different. There is a verse in the Quran that speaks about this
very question. Yusuf Ali (1991) verse 2:275:
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“Those who devour usury (riba) will not stand except as stands one whom the Evil One by
his touch hath driven to madness. That is because they say: „trade is like usury‟, but Allah
(God) hath permitted trade and forbidden usury”
The general rule that comes from the above verse is that trade is permissible and sales based
on interest are strictly forbidden. “A valid trade is conducted in Islam if the buyer and seller
exchange an offer and acceptance which specify the object of sale and the price and they both
agree”. El-Gamal (2000)
The principles of Islamic finance are best understood by the elaboration of some permissible
modes of finance. I will therefore explain the four most common finance methods used by
Islamic banks. All four of these methods were adapted from El-Gamal (2000). The four
methods include:
Cost-plus sales (murabaha)
Credit sales (bay bi-thamun „ajil)
Leasing (ijarah)
Partnerships (musharaka & mudaraba)
1. Cost-plus sales (murabaha)
In this sale the buyer knows the cost price at which the seller obtained the object and agrees
to pay the seller a premium. The premium can be an amount or a percentage. The fact that
there is a percentage attached to the sale should not be of concern if the condition of that sale
is that of murabaha. Another important condition that needs to exist is that the Islamic bank
needs to own the object at the time of sale.
2. Credit sales (bay bi-thamun ‘ajil)
Murabaha cost-plus sales are very rarely used by Islamic banks, as customers do not usually
have large lump sums to settle the sale. A more common way of finance is when a customer
approaches an Islamic bank to purchase an object through bay bi-thamun „ajil, which is a
murabaha (cost-plus sale) with the payment being deferred and most commonly paid in
instalments.
It is easy to look at the end result and state that this is just a loophole to circumvent the
prohibition of interest; however a difference would be that the rate of return is agreed upon
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up front. Furthermore, it is permissible to increase the sale price if the price is based on
deferment.
This basis of finance is best explained by means of an example. Consider a credit sale where
an object is sold for R10 payable in one month. At the end of the month the buyer and seller
agree to postpone by another month and increase the price to R11. The latter agreement is
riba (interest). However if the buyer and seller had agreed upfront the sale price of R11 and
payment period of two months, this would not be considered as riba as reveals in Yusuf Ali
(1991), “but Allah god has permitted trade and forbidden riba”. The legal difference is very
clear; the second agreement is the sale of an object for which the sales prices has been
increased due to deferral whereas the first example is an increase in the amount of debt due to
deferment. This is the reason why Muslims should avoid interest bearing loans.
3. Leasing (ijarah)
A lease contract is one in which the use of an object is sold for a specified period of time.
This is a permissible means of finance in terms of Islamic law. In this agreement the lessor
(Islamic bank) will purchase an object and lease the object to the lessee for a specified period
and amount. At the end of the lease the lessor agrees to sell the object for a predetermined
amount (residual). An important point to note is that ownership remains with the Islamic
bank for the entire duration of the lease and only transfers on payment of the residual at the
completion of the lease period.
This arrangement appears to be the same as conventional banking but the lease is set up so
that no riba (interest) arises even in the future, for example late payment fees.
4. Partnership
In contrast to the conventional debt based financing, another commonly used financing
method is partnerships in which profits and losses are shared. There are two types of
partnership agreements; silent partnership (mudaraba) and full partnership (musharaka).
These agreements require strict documentation of all the terms of partnership which includes
the rules for sharing of profits and losses.
A commonly used example is the purchase of real estate in which the bank and the customer
share ownership. In contrast to the leasing model (ijarah), where ownership remains with the
bank for the entire period, this model shares ownership between the bank and the customer.
Monthly payments are made which comprises partly of rental and partly of the purchase of
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the shares (equity) from the bank. Over time, ownership of the real estate transfers to the
buyer. This arrangement is similar to a mortgage schedule as the amount paid for rent is high
at the beginning of the partnership when the bank owns majority of the equity and the
purchase of ownership is small. As the equity held by the customer increases the rent
decreases and the purchase of ownership increases.
The most significant difference between conventional banking and Islamic banking when
analysing this arrangement is that the conventional bank has sold the customer debt and holds
a lien on the financed estate whereas the Islamic bank has joint ownership in the estate as
both the bank and the customer holds equity in the partnership.
Difference between sale and interest
As mentioned previously the distinction between sale and interest is made very clear in the
Quran as God explicitly permitted sale and prohibited interest (Quran 2:275).
Kahf & Khan (1988), states that the difference between interest and sale is the manner in
which risk is distributed. In the conventional banking system risk is transferred to the
borrower and results in the lender holding a risk free asset. This results in an inequitable and
economically inefficient society, whereas sale/trade conforms to natural uncertainty. This
basis is not only equitable but also efficient. This comparison makes it clear that the object of
sale in the conventional banking system is time and the price is interest.
D. Arguments against Islamic banking and challenges of Islamic banking
Arguably the greatest challenge of Islamic banking is that the industry is still very much in its
infancy (Usmani (2009)). When compared to conventional banking, Islamic banks have only
been around for about thirty years.
The establishment of conventional banking is demonstrated by its market share and its
dominant position in the rating of the top 50 banks worldwide. To demonstrate this
dominance, the largest Islamic bank is not large enough to form part of the top 50 banks in
the world. To the extent that the conventional bank which is ranked1 in the 50
th position has
total assets of US$ 419 billion, whilst the largest Islamic bank has total assets of just over
US$ 43 billion2.
1 guardian.co.uk
2 theasianbanker.com
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Mirakhor (1997), states that the major challenge with Islamic banking is its fund placement.
Islamic banks fund placements have a bias towards short term, secured, low return but liquid
investments. Mirakhor (1997) further states that even though this may be noble and important
objective, Islamic banks have not achieved the market depths that will ensure long term
profitability and survival.
Mirakhor (1997) as well as Ebrahim (2001) both raise the concerns regarding the ability of
Islamic banks to respond with innovative products and solutions when compared to
conventional banking. The response rate is further hampered by the large amount of red tape
that surrounds the approval of new Shariah compliant financing products.
Tahir (2003) in his paper addressing the current issues in the practice of Islamic banking has
highlighted a few teething problems which are summarised below:
1. Standardisation
Standardisation is needed in the following three respects:
1. Vocabulary –there is no universally used terminology. The same instruments are
referred to using different names amongst various banks.
2. Documentation – concerns may vary from bank to bank, thus the required
documentation also varies.
3. Pricing formulas – standardisation of the pricing of financial products is also a
concern as every Islamic bank implements their own pricing structure.
2. Training / education of financial professionals
The number of institutions available to adequately train staff is limited, which has resulted in
qualified manpower being a huge hurdle. Furthermore, there is a dire need for research in this
area. With the finance world moving at a rapid pace, Islamic banking struggles to keep up
and the rate at which new products are introduced is extremely slow due to the limited
number of specialists able to approve Shariah compliant products.
3. Institutionalisation of recovery of debts
The recovery of debts is of vital importance to the survival of the Islamic banks. Payment
defaults, whether it relates to the principle or the instalment, can adversely affect the bank.
The Shariah bars the bank from charging for payment delays as well as indexing for inflation.
Measures available to the banks include careful evaluation of creditworthiness of customers,
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proper pricing of the product and efficient covering of contracts. Finally, there is also a need
to redefine the legal right of creditors (bank) in the result of disputes and defaults.
E. The last financial crisis
Crotty (2008) in his article on the structural causes of the global financial crisis outlines that
the origin and trajectory of the last financial crisis was the worst since the great depression in
the early twentieth century. The beginning of the current recession began in the early 1990s
when the housing market bubble began to form. This market had accelerated in the early-mid
2000s. Due to the remuneration structures in place, banks and mortgage brokers pushed
mortgage sales as their earnings were based on a proportion of the sales they wrote. The
banks then securitised these mortgages in the form of mortgaged backed securities (MBS)
and collateralised debt obligations (CDO) and sold them into the capital markets. It was
generally perceived that these securities were low risk as they were asset backed securities
and that little, if any, bank risk was involved. Insurance companies, investors and hedge
funds demanded these securities as they were often awarded high ratings by credit agencies.
These securities yielded higher returns than products with identical risk; which should have
been the first signal that the market had been incorrectly pricing the risk attached to these
securities. The demand for these products was so great that banks and mortgage brokers
began selling mortgages to those who could not afford them. As a result of this it was
inevitable that large defaults of mortgages would occur as soon as the housing bubble
evaporates or the interest rates rose.
The housing bubble peaked in 2005 and construction spending topped out in early 2006.
When the subprime mortgage crisis erupted in mid 2007, the entire edifice began to collapse.
Even though the crisis began in the US it spread throughout the world as these mortgaged
based securities were dispersed around the world, resulting in a global financial crisis. (Crotty
(2008)).
(Caballero, 2009) states that much of the financial crisis has been blamed on the crash of the
real estate bubble and the rise of the subprime mortgage defaults that followed it. (Caballero,
2009) argues that the global financial system went into cardiac arrest mode as a result of the
unexpected and sudden freezing of the entire securitisation industry. In a moment‟s notice
confidence vanished and turned into a source of counterparty risk, thus resulting in a financial
crisis.
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Baker (2008) in his analysis of the housing bubble and the financial crisis agrees with Crotty
(2008) on the events that led up to the financial crisis. However, Baker (2008) further states
that the lack of regulation was also a significant contributing factor which caused the housing
bubble.
Crotty(2008) goes on to further discuss several structured weaknesses in which modern
finance is built on. These include:
The theory of efficient capital markets is very weak and the celebratory narrative
based on this foundation is therefore seriously misleading.
Perverse incentives embedded in the current financial architecture generate excessive
risk taking throughout the financial markets.
Complex CDOs, MBSs and derivative products central to the boom where ticking
time bombs which could not be priced correctly and suffered from illiquidity
problems that accelerated the downturn.
Excessive risk built up in grant banks over the period.
Crotty (2008) concludes his article by stating that since the last recession only mild changes
have been made to correct the deep structural flaws within the current financial system
whereas radical change is required.
Usmani (2009) in his article analysing the aftermath of the last financial crisis, starts off by
stating that the view he expresses in this article may be radical but he drew his
encouragement from the words of the chairman of „The World Economic Forum‟ in his last
annual meeting, specifically:
“Today we have reached a tipping point which leaves us with only one choice: change or face
the continued decline and misery.”
Usmani (2009) agrees with Crotty (2008)‟s explanation of the causes of the last recession and
further elaborates on some fundamental principles of Islamic finance in the light of the last
recession:
Market economy and just distribution
The objective of an economic system is that wealth produced in a society must be distributed
in a just and fair manner. When the concept of planned economy (communism) failed in
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practice, the supporters of market economy rejoiced the occasion as their victory and declared
their system as the eternal one.
When thinking of an economy as a whole it is not enough to concentrate on numerical growth
only but also the equitable distribution thereof. For example, 20% of the people in the US
own 85% of the wealth.
Profit motive and greed
“Money is such a companion of yours that it does not benefit you until it leaves you”
– Imaam Hassan Al-Basri (RA)
This comment embodies two concepts:
1. Money is a means to achieve an objective, not the objective itself.
2. Money in itself has no intrinsic value.
The greed for wealth results in the individual being unable to see beyond ones selfish desires.
The mere condemnation of greed is therefore not sufficient to curb this evil, but rather there
needs to be some hard and fast rules and principles to govern or at least alleviate potential
greedy actions. Although „Laissez faire‟ is no longer popular in even capitalist countries, the
role of profit motive is of vital importance to market economy. Governments are not able to
clearly differentiate between profit motive and the greed for wealth.
In an article titled „How bank bonuses let us all down‟, Taleb (2009) states that the employee
incentive schemes that are commonly put in place at banks do exactly the opposite of what
the incentive system should be about. These schemes encourage risk hiding and deferred
blow-up (problems). Taleb (2009) further states that bankers have a free option as they share
in the profits but not in the losses. Incentives should be about true incentives, i.e. those that
resist blow-ups. There should also be disincentives to remove the asymmetry of the free
option.
Chapra (2008) states that one cannot blame the banks for this as, like everyone else, banks are
merely trying to maximise their profit. The more credit they extend, the higher their profits.
Excessive lending however leads to unstable booms in asset prices followed by an artificial
rise in consumption and speculative investments. Unwinding this artificial rise is what causes
a financial crisis.
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The nature of money
The philosophy behind money is to allow someone who wants food but sells clothes to be
able to trade. Money is therefore a medium of exchange; despite this economies have treated
money as a commodity.
The philosophical reason for the prohibition of interest results from the trading of money as
there is no real commodity involved. This phenomenon is further compounded by the
fractional reserve thereby creating imaginary money. The next step was derivatives which
increased the supply of money to an unbelievable extent. In 2008 the total reported
derivatives were US$ 741.1 trillion3 while the total GDP of the world was only UD$60.6
trillion4. This means that the worth of derivatives was twelve times more than the gross
products of the whole world.
In a world without interest, savers would receive a share of profits of the enterprise. The
aspects of interest has been criticised by many modern economists who claim that the role of
interest is the systematic transfer of money from those who have less to those who have
more. He uses an example of a third world country requiring aid. The system should be
redesigned and the arguments for interest and inflation free systems seem strong. This means
that major finance systems will be switched from a debt based system to one based on equity.
This will result in debt no longer being the predominant source of the economy and more
importantly all these debts will be backed by assets. Credit sales will therefore be restricted to
sales or deferment payment basis as discussed in section C of this report.
Speculation
When shocks convulse the market, blame is often directed at speculation, nonetheless
speculative transactions continue. Usmani (2009) states that when Adam Smith, the father of
modern economics and capitalism, discussed speculation he envisaged real commercial
activities. This will not put an economy at risk like the current system that enters into
contracts without real trade transactions.
3 Source: BIS.ORG
4 Source: World Bank, World Development Indicators
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Transparency
Transparency is one of the most important requirements of smooth trade. The buyer must
know what he is going to purchase and the seller must know what he is going to receive.
Lack of transparency is known as Gharar, which was discussed in section C. Many financial
markets and transaction are too complex to be understood by stakeholders. It was these
complex transactions that resulted in the collapse of a pyramid of financial instruments that
nearly wiped out 45% of global wealth.
Islamic Financial institutions in the last recession
There have been many claims that Islamic banks were not affected by the last recession.
Usmani argues that this is not entirely true, what would be more accurate to report is that
Islamic banks remained far away from the losses that conventional banks faced. This is due to
an absence of interest, complex derivatives, short sales and debt backed by real assets.
Usmani further states that Islamic banks will be affected for two reasons:
1. The crisis grasps an economy regardless of who is responsible.
2. Islamic banking is very much in its infancy.
In an article by ABC News (2009) relating an interview with the Malaysia finance minister
(Najib Razak), the minister indicated that the reason for the financial crisis is due to the
economic systems not being closely linked to the real and productive activities and this
causes a threat to the entire financial system. He further stated that when assets are backed by
real assets and risks are shared between the bank and depositor, there is an incentive for the
institution to ensure that the deal is sound. These are the primary reasons that Islamic banks
were less affected by the financial crisis than conventional banks.
F. Measurement of financial performance in the banking industry
Karr (2005) in his article on „Performance measurement in banking‟ refers to banks
increasingly using Return On Equity (ROE) as the ultimate scorecard. This article is centred
on why ROE should not be used as it does not address the “how‟s” or the “why‟s” of
performance but only serve as a temperature check on performance. In the context of
measuring performance of two banking systems, the “how‟s” and the “why‟s” are more
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pertinent to the individual banks themselves rather than the industry as a whole. ROE as a
measure of performance in the banking industry is therefore a good indicator.
Ebrahim & Joo (2001) in their study of Islamic banking in Brunei Darussalam used Return
On Assets (ROA) as an indicator of profitability. In their study, the performances of two
Islamic banks were compared to two conventional banks during the Asian crisis which
occurred in the nineties. The results from this exercise, which was conducted with a sample
of four banks, revealed that the performances of the Islamic banks were less dramatically
affected than that of the conventional banks.
(Samad & Hassan, 2004), in their study of the performance of the Malaysian Islamic Bank
during the period 1984 – 1997 also used ROE and ROA when analysing the profitability of
the bank. According to (Samad & Hassan, 2004) ROA and ROE are the indicators of
measuring managerial efficiency. A higher ratio is an indicator of a better performance.
(Samad & Hassan, 2004) found that on average the ROE and ROA of the Malaysian Islamic
Bank were higher during this period than that of a group of conventional banks.
This above finding is also in line with that of (Hassoune, 2002), in which the profitability of
Islamic banks was analysed in an interest rate cycle. (Hassoune, 2002) found that not only
was the profitability of Islamic banks less volatile than that of conventional banks, but also
the profitability of Islamic banks was much higher. (Hassoune, 2002) therefore concluded
that Islamic banks seem less vulnerable to the cyclical nature of returns on assets.
G. Conclusion
The findings presented in this literature review have provided evidence of links between the
conservative nature of Islamic banking and its resilience in its financial performance when
faced with times of economic hardship. However, due to this study being conducted at a very
early stage after the last recession there is no study specifically focussing on quantitatively
analysing the financial performance of the two banking systems. Furthermore, this study will
specifically focus on the volatility experienced in the financial performance of the two
banking systems in the last recession. This study attempts to fill this gap.
There has also been much research done previously in which the financial performance of
conventional banks was compared to that of Islamic banks. The research design of comparing
the ROE and ROA of these two banking systems is therefore appropriate and was followed in
this study as well as by Ebrahim et al. (2001) and (Samad & Hassan, 2004).
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III. METHODOLOGY
A. Research approach and strategy
The purpose of the study was to analyse the stability of the performance of the Islamic
banking system compared to the conventional banking system using a quantitative analysis.
Leedy et al. (2010) defines quantitative analysis as the use of numbers and statistics to make
better sense of a problem. The findings of the analysis allow for better predictions of future
trends and summarisation of larges sets of numerical data.
The study proposed the use of inductive reasoning. Leedy et al. (2010) describes inductive
reasoning as the use of specific instances or occurrences to draw a conclusion about the entire
population. The study will monitor the performance of a sample of conventional and Islamic
banks in order to draw a conclusion on the two banking systems.
Leedy et al. (2010), states that for the research to be meaningful the research assumptions
need to be valid. Much of the research assumption have been highlighted in section I-C,
however an assumption that is specific to the research approach and design is the assumption
that of the largest 15 banks in each of the banking systems will represent the banking system
as a whole. This assumption is valid, as any bias that may creep in due to one particular bank
will be eroded in a sample size of 15 banks.
B. Research Design, Data Collection and Research Instruments
Research design
Leedy et al. (2010) states that there are four common research designs adopted when
performing a quantitative analysis, these approaches are:
Observation studies
In this study, observations are recorded in great detail together with field notes. The focus of
this study is typically on a certain behavioural aspect. The behaviour is then quantified to
determine its overall frequency which is then used to conclude on the study.
Correlation research
This approach measures the extent to which one characteristic is related to one or more other
characteristics or variables. A correlation exists when one variable increases whilst the other
variable either increases or decreases in a predictable manner.
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Development design
Two types of development design exist. Firstly, a cross-sectional study is adopted when a
researcher collects all of the data needed at a single point in time. This is in contrast to a
longitudinal study in which the researcher is required to collect data from the same sample
over a lengthy period.
Survey research
Survey research requires acquiring information by asking questions and tabulating the
answers. The ultimate goal is to learn more about a large population by surveying a sample of
that population.
Based on the above description of possible research designs, the research design selected for
this study was a combination of a longitudinal study as well as correlation research. A
number of conventional and Islamic banks‟ performances were tracked for a period of seven
years and the relative performances between the two banking systems were observed, with
special attention being placed on the last global recession.
The researcher initially proposed that the research period should span over a period of ten
years commencing from 2000 to 2009. However, finding data for this period for the sample
of Islamic banks proved to be a challenge. The researcher therefore decided to reduce the
research period to seven years as this was the point from which meaningful data could be
obtained for both banking systems. Many of the Islamic banks have been around for decades,
however financial information for many of these banks have only been publically available
from 2003.
Data collection
The banks that were selected represent the largest banks in each of the respective industries.
It was assumed that most, if not all, of these banks are public companies and therefore the
information on the banks performance will be freely available. Furthermore, it was assumed
that information on the bank‟s performance will almost exclusively be gathered from
electronic sources such as Datastream, Reuters and the bank‟s web page.
Two challenges were identified when gathering data. Firstly, some of the larger Islamic banks
initially selected were privately owned banks and obtaining the required financial data proved
to be difficult. Secondly, some of the banks initially selected for testing were listed in
countries which do not make financial information freely available to the public. An example
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of a country like this was Iran; therefore no financial information could be obtained for the
banks listed in Iran. The initial sample of Islamic banks selected, refer appendix 2, consisted
of six banks that were of Iranian origin. These Iranian banks web pages were then
subsequently visited to investigate whether any financial information was available. This
exercise resulted in limited success as only one out of the six banks originally selected
provided financial data on their website.
Research instruments
Wegner (2007) indicates that excel is not a comprehensive package for statistical analysis;
however it does offer a wide selection of tools for some basic statistical analysis. The analysis
that is likely to be performed includes trend analysis, correlation analysis and data dispersion
analysis (standard deviation), all of which excel is able to analyse.
C. Sampling
Leedy et al. (2010) suggests that when a researcher has no way of guaranteeing that each
element of the population will be represented by the population, which was the case in this
study, a non-probability sampling method should be used. Furthermore, if some members of
the sample have no chance of being sampled the following three methods are the most
common forms of non-probability sampling techniques:
1. Convenience sampling – this sampling technique makes no pretence of identifying a
representative subset of a population. It takes people or other units that are readily
available.
2. Quota sampling – this method selects respondents in the same proportion that they
are found in general.
3. Purposive sampling – samples that are chosen for a particular purpose. Researchers
may decide that the response from a particular group is diverse enough to give a
perspective on the issue.
The method used when selecting banks was purposive sampling. It was originally decided
that the top 15 banks of each convention would be selected. However, for reasons previously
mentioned this was not possible due to the availability of financial information. The selection
was therefore based on the largest 15 banks of each banking system, based on total assets, for
which financial information is freely available from 2003 to 2009.
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The 15 Islamic banks were identified and selected from a publication by
www.theasianbanker.com listing the top Islamic banks in the world. The 15 conventional
banks were selected based on results published by The Banker magazine
(www.thebanker.com). Both these ratings were based on the bank‟s total asset value. The 15
banks to be used in the sample are represented in the table below:
Table 1 - Conventional banks selected:
No. Name Country Reporting Currency
1 Royal bank of Scotland United Kingdom British Pounds
2 Deutsche Bank Germany Euros
3 BNP Paribas France Euros
4 Barclays United Kingdom British Pounds
5 HSBC United Kingdom British Pounds
6 Credit Agricole Group France Euros
7 City Group United States of America US Dollar
8 UBS Switzerland Swiss Franc
9 Mitsubishi UFJ Financial
Group
Japan Japanese Yen
10 Bank of America United States of America US Dollar
11 Societe Generale France Euros
12 JP Morgan Chase United States of America US Dollar
13 Unicredit Italy Euros
14 Mizuho Financial Group Japan Japanese Yen
15 Credit Suisse Switzerland Swiss Franc
Table 2 - Islamic banks selected:
No. Name Country Reporting Currency
1 Al Rajhi Bank Saudi Arabia Saudia Arabian Riyal
2 Bank Saderat Iran Iran Euro / Pounds
3 Kuwait Finance House Kuwait Kuwaiti Dinar
4 Dubai Islamic Bank United Arab Emirates UAE Dirham
5 Abu Dhabi Islamic Bank United Arab Emirates UAE Dirham
6 Albaraka Banking Group Bahrain US Dollar
7 Bank Islam Malaysia Malaysia Malaysian Ringgit
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8 CIMB Islamic Bank Malaysia Malaysian Ringgit
9 Bank Asya Turkey Turkish Lira
10 Kuwait International Bank Kuwait Kuwaiti Dinar
11 Qatar International Islamic
Bank
Qatar Qatari Riyal
12 Albaraka Türk Katilim Bankasi Turkey Turkish Lira
13 RHB Islamic Bank Malaysia Malaysian Ringgit
14 Jordan Islamic Bank Jordan Jordanian Dinar
15 Bahrain Islamic Bank Bahrain Bahraini Dinar
In order to identify a trend in the performance of the above banks, the performance was
analysed for a seven year period. Data was collected from 2003 to 2009. A total of 210 data
points will therefore be available for analysis for each KPI (i.e. 210 for ROE and 210 for
ROA).
D. Data analysis methods
Measures of performance
As mentioned previously the purpose of the study is to measure variability / stability of the
performance of the two banking systems. The Key Performance Indicators (KPI) identified to
measure this is Return On Equity (ROE) and Return On Assets (ROA). Correia et al. (2000)
states that there are three ratios available to measure performance, namely:
1. Gross Profit Margin
2. Return On Assets
3. Return On Equity
Gross profit margin [(Revenue – Cost of sales) / Revenue] will not be used as a measure of
performance as the method in which revenue is raised and recognised differs in the two
banking systems.
Correia et al. (2000) defines Return on Assets as the measure of the company‟s profitability
in relation to the total assets employed by the company to generate income. This ratio is
calculated by dividing the net profit by the total assets of the company.
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Correia et al. (2000) defines Return on Equity as the profitability achieved in relation to the
total shareholder funds invested in the company. This ratio is calculated by dividing the net
profit by the total shareholders‟ equity.
In order to calculate the ROE and ROA ratios, three pieces of financial information were
required i.e. net profit after tax, total assets and total shareholders‟ equity. From this the ROE
and ROA ratios were calculated for the seven year period commencing 2003 to 2009.
Time series and trend analysis
When data is gathered in a systematic manner based on time, for example weekly, monthly,
quarterly, annually, these series of observations are examples of time series (Waters (1994)).
When these observations are plotted on a graph there are three common patterns that
generally emerge:
1. Constant series – observations that take a similar value over time.
2. Series with a trend – observations that depict either a rise or a fall over time.
3. Seasonal series – observations that are cyclical, for example daily, weekly,
annually.
When the performance of the two banking systems were analysed, the two patterns that
surfaced were the constant series and a series with a trend. In times of economic stability it is
likely that the bank‟s performance will be constant. However, when the economy experiences
a boom or a recession the trend will rise or fall respectively.
Waters (1994) indicates that there are two ways of finding a trend:
1. Linear regression, with time as the independent variable.
2. Analysis of a moving average.
The trend for each banking system was formulated by averaging the performances of the
sample of banks selected for each period in which an observation was made.
(McClave, Benson, & Sincich, 2010) states that often time series have such irregular
fluctuations that it is difficult to describe the trend. A method of removing the rapid
fluctuations in the time series is by smoothing the data. An exercise was undertaken whereby
the net profit after tax, total assets and total shareholders‟ equity was smoothed from one year
to another. To smooth the transition from one year to the next, the movement was tracked
from one quarter to the next rather than from one year to the next.
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Water (1994) states that to identify a trend the analysis of the moving average will assist in
this regard. The researcher‟s first attempt to identify this trend was by capturing the ROE and
ROA percentages for each of the 15 banks in each convention. The average percentage
resulting from the 15 banks for that quarter would represent that industry. This approach
worked well for the conventional banking system; however there were a number of
significant outliers that were identified for the Islamic banking convention which distorted
the findings and therefore not allowing a trend to be analysed. Refer to appendix 3 and the
figure below for the findings of the outliers identified. Furthermore the outliers are also
highlighted in yellow for ease of reference.
Figure 1 - Outliers identified on initial attempt using percentages
The calculation of the ROE and ROA on the second attempt proved significantly more
challenging as all that was required during the first attempt was the calculation of the three
ratios using the financial data in the reporting currency. In order to address the outliers
identified, the researcher calculated the average net profit after tax, total assets and total
shareholders‟ equity in US dollars for all banks selected. This was done by translating the
quarterly financial data for all banks from the reporting currency to US dollars at the spot rate
at the end of each quarter to arrive at data that is represented in one currency, being US
dollars.
Once the net profit after tax, total assets and total shareholders‟ equity was calculated in US
dollars, the average figures were then used to calculate ROE and ROA ratios. Refer to
-150.00%-100.00%
-50.00%0.00%
50.00%100.00%150.00%200.00%250.00%300.00%350.00%
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appendix 4 for the translated financial information as well as the rates used to translate the
financial information from the reporting currencies to US dollars.
Correlation
As both banking systems operate in the same industry, i.e. the banking industry, the
relationship of the performances will be an interesting study. An understanding of the
correlation between the two banking systems will be undertaken. Koop (2009) defines a
correlation study as an investigation of the nature of the relationship between two variables.
Furthermore a rolling correlation study will be done whereby the correlation of the preceding
four quarters will be analysed over the research period.
Koop (2009) indicates that correlations (r) have the following properties:
r lies between -1 and +1
a positive r indicates a positive correlation, whilst a negative r indicates a negative
correlation and when r is zero no correlation exists.
The closer the r is to +1 or -1 the stronger the positive or negative relationship.
Measure of dispersion
The extent to which data is dispersed measures its variability and stability of that data
Wegner (2008). This influences the confidence in the representation and reliability (stability)
of the measure. Widely spread data indicates low reliability and less confidence, the converse
is true for highly concentrated data.
Wegner (2007) indentified a few commonly used measures to describe data dispersion:
Range
Inter-quartile range
Quartile deviation
Standard deviation
In order to analyse the stability, the standard deviation between the two banking systems was
tested as well as the rolling standard deviation for the research period.
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E. Limitations
Leedy et al. (2010) states that it is nearly impossible for a researcher to fully avoid data that is
contaminated by a bias of one sort or another. They further state that it is unprofessional for
the researcher to fail to recognise or acknowledge the likelihood of the bias. The following
biases have therefore been identified relating to the data studied:
1. The geographic locations of the conventional banks to be sampled are spread across
North America, Europe and Asia. No single economic bias is therefore present in this
sample. In the sample of Islamic banks however, the banks sampled are all located in
the Middle East and Malaysia. There may therefore be an economic bias present in
this sample selected.
2. Another bias that may exist is that the relative sizes of the banks sampled are not on
the same scale. To put it into perspective the largest Islamic bank would not be
included in the ranking of the top 50 banks worldwide. In order to address this
concern, the performance measurement ratios that will be used are percentages. The
use of percentages therefore eliminates the size differential and allows for the
comparison of two unequal items.
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IV. RESEARCH FINDINGS, ANALYSIS AND DISCUSSION
The purpose of this study was to gain a better understanding of the stability and variability in
the financial performance of the Islamic banking system when compared to the conventional
banking system. The study further focuses on the variability in the performance of the two
banking systems when faced with economic uncertainty, as presented by the recession of
2008 for example.
Usmani (2009) states that there have been many unsubstantiated claims that Islamic banks
were not affected by the last recession. The findings from this analysis will allow for a better
understanding of the relative performances of the two banking systems in the last recession.
Furthermore, by using a quantitative design, the analysis attempts to determine if it can be
said that Islamic banks performed better during the last recession.
The researcher initially set out to answer the following questions:
i. When performing a trend analysis, is there a significant deviation in performance
of the ROE and ROA of the two banking systems in the last recession?
ii. Does the standard deviation and the rolling standard deviation increase between
the two banking system‟s ROE and ROA when faced with a recession?
iii. Is there a negative correlation and negative rolling correlation in the financial
performance of the two banking systems during the last recession?
The research findings and analysis will attempt to answer and analyse each of the above
mentioned questions.
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i. When performing a trend analysis, is there a significant deviation in
performance of the ROE and ROA of the two banking systems in the last
recession?
Conventional Banking
The data represented in table 1 is a summary of the findings included in appendix 4, which is
the translated financial data that is required to calculate the ROA and ROA ratio. These ratios
were then calculated as per Correia et al. (2000) as follows:
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Table 3 - Conventional banking summarised data:
MONTH NET PROFIT TOTAL ASSETS TOTAL EQUITY ROE ROA
Q1 2003 2 484 971 767 685 664 90 482 257 2.75% 0.32%
Q2 2003 3 027 079 813 251 408 96 527 760 3.14% 0.37%
Q3 2003 3 399 022 832 673 022 99 741 721 3.41% 0.41%
Q4 2003 4 033 698 896 655 745 107 939 833 3.74% 0.45%
Q1 2004 4 882 681 960 906 025 117 100 520 4.17% 0.51%
Q2 2004 5 537 293 981 403 209 121 030 436 4.58% 0.56%
Q3 2004 6 321 912 1 020 081 465 127 129 803 4.97% 0.62%
Q4 2004 7 368 191 1 117 437 553 139 237 026 5.29% 0.66%
Q1 2005 7 751 299 1 185 711 254 151 361 799 5.12% 0.65%
Q2 2005 8 055 706 1 235 718 041 161 585 032 4.99% 0.65%
Q3 2005 8 247 842 1 266 232 717 169 039 364 4.88% 0.65%
Q4 2005 8 466 957 1 300 724 581 176 709 650 4.79% 0.65%
Q1 2006 9 091 370 1 354 675 424 182 654 977 4.98% 0.67%
Q2 2006 10 032 529 1 462 866 105 195 350 775 5.14% 0.69%
Q3 2006 10 597 530 1 502 053 787 199 671 496 5.31% 0.71%
Q4 2006 11 417 867 1 584 161 625 209 040 638 5.46% 0.72%
Q1 2007 10 840 467 1 681 149 399 221 896 545 4.89% 0.64%
Q2 2007 10 336 527 1 792 920 838 236 596 760 4.37% 0.58%
Q3 2007 10 023 721 1 949 819 767 256 339 798 3.91% 0.51%
Q4 2007 9 717 325 2 122 048 648 277 946 568 3.50% 0.46%
Q1 2008 5 939 517 2 287 056 802 292 395 623 2.03% 0.26%
Q2 2008 1 916 701 2 353 550 802 295 899 222 0.65% 0.08%
Q3 2008 -2 088 106 2 434 527 122 300 727 357 -0.69% -0.09%
Q4 2008 -5 484 701 2 389 692 320 293 266 888 -1.87% -0.23%
Q1 2009 -3 083 913 2 169 239 598 286 272 383 -1.08% -0.14%
Q2 2009 -1 293 217 2 139 850 588 298 073 005 -0.43% -0.06%
Q3 2009 722 739 2 116 631 943 311 837 989 0.23% 0.03%
Q4 2009 2 761 613 2 057 155 628 321 804 150 0.86% 0.13%
Min
-1.87% -0.23%
Max
5.46% 0.72%
Range
7.33% 0.95%
Source: Researcher‟s own calculation
The above findings are then graphically displayed in figure 1 and 2 below. What is noticeably
evident here is the drop in financial performance and how this drop in performance coincides
with the time line of the last recession. Crotty (2008) in his paper on his account of the last
recession stated that home sales peaked in 2005, with house prices peaking in 2006 followed
by the subprime mortgage crisis then erupting in mid 2007.
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The performance of the conventional bank‟s ROE and ROA ratios followed the exact course
as outlined by Crotty (2008), with the average ROE and ROA for conventional banking
peaking at around 5.5% in 2006. This was then followed by a sharp decline in 2007 with
performances bottoming out at -2% in 2008.
Figure 2 - Graphic illustration of the performance of the conventional bank’s ROE over the research period
Figure 3 - Graphic illustration of the performance of the conventional bank’s ROA over the research period
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09
ROE - Conventional Banks
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
Q1
20
03
Q2
20
03
Q3
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08
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20
08
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20
09
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20
09
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20
09
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20
09
ROA - Conventional Banks
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Islamic Banking
The Islamic bank‟s data was prepared and arranged in exactly the same manner as the
conventional banks. The first thing that is apparent is that the average ROE and ROA
percentage is higher in Islamic banking than conventional banking. These findings are in line
with Hassoune‟s findings (2002). His research founds that Islamic banks ROE were generally
higher than conventional banks‟ ROE. He argues that the fact that Islamic banks rely on high
amounts of non-profit bearing deposits or non-remunerated current accounts explains this
difference. This funding cost, which is the interest paid by conventional banks to depositors
or the reserve bank, was the main element differentiating between Islamic and conventional
banks as far as profitability is concerned, thus resulting in increased ROE ratios.
The second finding is that the financial performance of the Islamic banks did not follow the
performance trends described by Crotty (2008) as was the case for conventional banks. The
average financial performance continued to increase throughout the research period and
peaked at the end of 2008 at just over 12% for ROE. The average financial performance then
dropped off in 2009, however the drop off was not nearly as large as that experienced by the
conventional banking system.
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Table 4 - Islamic banking summarised data:
MONTH NET PROFIT TOTAL ASSETS TOTAL EQUITY ROE ROA Q1 2003 712 247 74 615 237 13 365 736 5.33% 0.95% Q2 2003 724 767 75 990 986 13 619 810 5.32% 0.95% Q3 2003 719 829 75 424 758 13 514 668 5.33% 0.95% Q4 2003 764 054 80 297 487 14 413 123 5.30% 0.95% Q1 2004 859 085 86 527 950 15 399 508 5.58% 0.99% Q2 2004 882 865 85 357 880 15 045 280 5.87% 1.03% Q3 2004 935 434 87 144 888 15 228 471 6.14% 1.07% Q4 2004 1 017 269 91 612 585 15 885 379 6.40% 1.11% Q1 2005 1 144 888 93 283 460 16 213 413 7.06% 1.23% Q2 2005 1 276 709 95 446 955 16 628 267 7.68% 1.34% Q3 2005 1 367 867 94 756 148 16 529 689 8.28% 1.44% Q4 2005 1 458 768 94 440 866 16 499 152 8.84% 1.54% Q1 2006 1 517 420 97 193 392 16 597 977 9.14% 1.56% Q2 2006 1 654 619 105 143 459 17 584 621 9.41% 1.57% Q3 2006 1 722 691 108 375 310 17 740 157 9.71% 1.59% Q4 2006 1 839 059 114 931 054 18 416 468 9.99% 1.60% Q1 2007 1 887 052 110 090 853 18 865 413 10.00% 1.71% Q2 2007 1 947 755 105 814 489 19 435 420 10.02% 1.84% Q3 2007 2 037 441 102 897 790 20 305 779 10.03% 1.98% Q4 2007 2 127 111 99 652 986 21 178 554 10.04% 2.13% Q1 2008 1 882 464 80 737 267 17 767 413 10.60% 2.33% Q2 2008 2 087 468 83 295 301 19 108 425 10.92% 2.51% Q3 2008 2 280 457 85 192 349 20 323 217 11.22% 2.68% Q4 2008 2 286 669 80 777 120 19 881 551 11.50% 2.83% Q1 2009 2 096 255 77 690 413 19 044 314 11.01% 2.70% Q2 2009 2 033 377 79 129 042 19 372 709 10.50% 2.57% Q3 2009 1 993 201 81 521 338 19 965 282 9.98% 2.45% Q4 2009 1 924 233 82 955 804 20 301 491 9.48% 2.32%
Min
5.30% 0.95%
Max
11.50% 2.83%
Range
6.20% 1.88%
Source: Researcher‟s own calculation
A further finding from the brief analysis was the measure of dispersion of the ratios analysed.
Wegner (2008) states that the extent to which data is dispersed measures its stability and
variability. Even though the ROE percentages are much higher than those experienced in the
conventional banking system, the range of the ROE of the Islamic banks is much closer than
the range of the conventional banks. The range of the Islamic banks is 6.20% (max 11.50%,
min 5.30%) and the range of the conventional banks is 7.33% (max 5.46%, min -1.87%).
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The dispersion of the results during the recessionary period is interesting to note. The
analysis was performed for the period 2007 to 2009. These results revealed that the
dispersion of the financial results were significantly less than the dispersion of the
conventional banks. The dispersion of the ROE was within a range of 2.02% (max 11.50%,
min 9.48%) for Islamic banks and 6.76% (max 4.89, min -1.87%) for the conventional banks.
Figure 4 - Graphic illustration of the performance of the Islamic bank’s ROE over the research period
Figure 5 - Graphic illustration of the performance of the Islamic bank’s ROA over the research period
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Q1
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ROE - Islamic Banks
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
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ROA - Islamic banks
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ii. Does the standard deviation and the rolling standard deviation increase
between the two banking system’s ROE and ROA when faced with a
recession?
Table 3 and table 4 below contain the standard deviations of the ROE and ROA performances
between the two banking systems. Lind et al. (2008), states that standard deviation measures
the deviation from the mean. The larger the deviation from the mean, the larger the resulting
standard deviation will be.
The final 2 columns in each table below measures the rolling standard deviation of each
banking system based on the previous four quarter‟s observations. This measures the standard
deviation within each banking system.
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Table 5 - ROE standard deviation summarised data:
ROE
Standard Deviation Rolling Standard Deviation
Period Conventional
Banks Islamic Banks
Conventional Banks
Islamic Banks
Q1 2003 2.746% 5.329% 0.0182
Q2 2003 3.136% 5.321% 0.0154
Q3 2003 3.408% 5.326% 0.0135
Q4 2003 3.737% 5.301% 0.0110 0.42% 0.01%
Q1 2004 4.170% 5.579% 0.0099 0.45% 0.13%
Q2 2004 4.575% 5.868% 0.0091 0.51% 0.26%
Q3 2004 4.973% 6.143% 0.0082 0.53% 0.36%
Q4 2004 5.292% 6.404% 0.0078 0.49% 0.36%
Q1 2005 5.121% 7.061% 0.0137 0.31% 0.51%
Q2 2005 4.985% 7.678% 0.0190 0.15% 0.69%
Q3 2005 4.879% 8.275% 0.0240 0.18% 0.80%
Q4 2005 4.791% 8.841% 0.0286 0.14% 0.77%
Q1 2006 4.977% 9.142% 0.0294 0.09% 0.65%
Q2 2006 5.136% 9.409% 0.0302 0.15% 0.49%
Q3 2006 5.307% 9.711% 0.0311 0.22% 0.37%
Q4 2006 5.462% 9.986% 0.0319 0.21% 0.37%
Q1 2007 4.885% 10.003% 0.0361 0.25% 0.28%
Q2 2007 4.369% 10.022% 0.0399 0.49% 0.15%
Q3 2007 3.910% 10.034% 0.0432 0.67% 0.02%
Q4 2007 3.496% 10.044% 0.0462 0.60% 0.02%
Q1 2008 2.031% 10.595% 0.0605 1.01% 0.28%
Q2 2008 0.648% 10.924% 0.0726 1.49% 0.44%
Q3 2008 -0.694% 11.221% 0.0842 1.80% 0.50%
Q4 2008 -1.870% 11.501% 0.0945 1.69% 0.39%
Q1 2009 -1.077% 11.007% 0.0854 1.05% 0.26%
Q2 2009 -0.434% 10.496% 0.0772 0.63% 0.42%
Q3 2009 0.232% 9.983% 0.0689 0.90% 0.65%
Q4 2009 0.858% 9.478% 0.0609 0.84% 0.66% Source: Researcher‟s own calculation
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Table 6 - ROA standard deviation summarised data:
ROA
Standard Deviation
Rolling standard deviation
Period Conventional
Banks Islamic Banks
Conventional Banks
Islamic Banks
Q1 2003 0.324% 0.955% 0.0044
Q2 2003 0.372% 0.954% 0.0041
Q3 2003 0.408% 0.954% 0.0038
Q4 2003 0.450% 0.952% 0.0035 0.05% 0.00%
Q1 2004 0.508% 0.993% 0.0034 0.06% 0.02%
Q2 2004 0.564% 1.034% 0.0033 0.07% 0.04%
Q3 2004 0.620% 1.073% 0.0032 0.07% 0.05%
Q4 2004 0.659% 1.110% 0.0031 0.07% 0.05%
Q1 2005 0.654% 1.227% 0.0040 0.04% 0.08%
Q2 2005 0.652% 1.338% 0.0048 0.02% 0.12%
Q3 2005 0.651% 1.444% 0.0056 0.00% 0.14%
Q4 2005 0.651% 1.545% 0.0063 0.00% 0.14%
Q1 2006 0.671% 1.561% 0.0062 0.01% 0.10%
Q2 2006 0.686% 1.574% 0.0062 0.02% 0.06%
Q3 2006 0.706% 1.590% 0.0062 0.02% 0.02%
Q4 2006 0.721% 1.600% 0.0062 0.02% 0.02%
Q1 2007 0.645% 1.714% 0.0075 0.03% 0.06%
Q2 2007 0.577% 1.841% 0.0089 0.07% 0.12%
Q3 2007 0.514% 1.980% 0.0103 0.09% 0.16%
Q4 2007 0.458% 2.135% 0.0118 0.08% 0.18%
Q1 2008 0.260% 2.332% 0.0146 0.14% 0.21%
Q2 2008 0.081% 2.506% 0.0171 0.20% 0.23%
Q3 2008 -0.086% 2.677% 0.0195 0.23% 0.23%
Q4 2008 -0.230% 2.831% 0.0216 0.21% 0.22%
Q1 2009 -0.142% 2.698% 0.0200 0.13% 0.13%
Q2 2009 -0.060% 2.570% 0.0185 0.07% 0.11%
Q3 2009 0.034% 2.445% 0.0170 0.11% 0.17%
Q4 2009 0.134% 2.320% 0.0154 0.12% 0.16% Source: Researcher‟s own calculation
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Standard deviation
Figure 5 and 6 graphically illustrates the standard deviation between the Islamic and
conventional banking systems over the research period. The standard deviation for both ROE
and ROA follows the same pattern with the standard deviation between the two industries
being the greatest at the very peak of the recession in 2008. This finding is consistent with the
trend analysis finding which demonstrated that the average Islamic banks were producing a
positive ROE, whilst the average conventional banks were producing a negative ROE.
Figure 6 - Graphic illustration of the standard deviation of the ROE over the research period
Figure 7 - Graphic illustration of the standard deviation of the ROA over the research period
00.010.020.030.040.050.060.070.080.09
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Standard Deviation - ROE
0
0.005
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Standard Deviation - ROA
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Rolling Standard deviation
Figure 7 and 8 below represents the rolling standard deviation of each banking convention‟s
ROE and ROA. As explained previously the rolling standard deviation measures the standard
deviation of the average performance of that particular banking industry based on the
previous four quarter‟s financial performance. For example, the first point on conventional
bank‟s rolling standard deviation for its ROE is 0.42%. This has been calculated by
calculating the standard deviation in the ROE percentages for quarter 1 of 2003 to quarter 4
of 2003.
When analysing the ROE rolling standard deviation for the Islamic banks, the outcomes
fluctuate between 0% and 0.75% for the entire research period
The ROE for conventional banking on the other hand fluctuated between 0% and 0.6% for
the period 2003 to 2007. During the recessionary period the rolling standard deviation starts
to increase and peaks at 1.8% in 2008 which is significantly higher than that experienced in
the years prior to 2008.
When analysing the ROA, at first glance it appears as if the Islamic and conventional banking
systems is equally volatile. However this is not the case when a deeper analysis is done.
Firstly, the scale of the two sets of ROA results is significantly different. When analysing the
ROA results presented in table 4 above, it is clearly evident that the ROA percentages
achieved for the Islamic banking system is on average much higher than that of the
conventional banking system. This is likely due to the Islamic banking system favouring asset
backed investment and lending arrangements.
If one compares the rolling deviations of the Islamic banking system prior and post its peak in
2008, you will find that the deviations are not significantly different. With the conventional
bank on the other hand, if the rolling standard deviation for ROA is tracked from 2003 to
2007, the rolling deviation fluctuates between 0% and 0.07%. In 2008 this rolling standard
deviation for conventional bank‟s ROA increases to 0.23%, which is more than three times
the average experienced prior to 2008.
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Figure 8 - Graphic illustration of the rolling standard deviation of the ROE observed for both banking systems over
the research period
Figure 9 - Graphic illustration of the rolling standard deviation of the ROA observed for both banking systems over
the research period
0.00%0.20%0.40%0.60%0.80%1.00%1.20%1.40%1.60%1.80%2.00%
Q4
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Rolling Standard Deviation - ROE
Rolling standard deviation - Conventional banks
Rolling standard deviation - Islamic Banks
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
Q4
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Rolling Standard Deviation - ROA
Rolling standard deviation - Conventional banks
Rolling standard deviation - Islamic Banks
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iii. Is there a negative correlation and negative rolling correlation in the
financial performance of the two banking systems during the last recession?
Tables 5 and 6 below summarise the correlation and rolling correlation analysis for the two
banking system‟s ROE and ROA ratios. Lind et al. (2008), states that a correlation analysis is
the study of the relationship between two variables. With regard to the current study, the
purpose of this analysis is to measure the relationship between the two banking system‟s
ROE and ROA
Table 7 - ROE correlation summarised data:
ROE
Period Conventional
Banks Islamic Banks
Rolling Correlation
Q1 2003 2.746% 5.329%
Q2 2003 3.136% 5.321%
Q3 2003 3.408% 5.326%
Q4 2003 3.737% 5.301% -0.8092
Q1 2004 4.170% 5.579% 0.7947
Q2 2004 4.575% 5.868% 0.9466
Q3 2004 4.973% 6.143% 0.9997
Q4 2004 5.292% 6.404% 0.9994
Q1 2005 5.121% 7.061% 0.6676
Q2 2005 4.985% 7.678% -0.2823
Q3 2005 4.879% 8.275% -0.9965
Q4 2005 4.791% 8.841% -0.9968
Q1 2006 4.977% 9.142% -0.2948
Q2 2006 5.136% 9.409% 0.7193
Q3 2006 5.307% 9.711% 0.9998
Q4 2006 5.462% 9.986% 0.9999
Q1 2007 4.885% 10.003% 0.0012
Q2 2007 4.369% 10.022% -0.4987
Q3 2007 3.910% 10.034% -0.9983
Q4 2007 3.496% 10.044% -0.9945
Q1 2008 2.031% 10.595% -0.9466
Q2 2008 0.648% 10.924% -0.9913
Q3 2008 -0.694% 11.221% -0.9909
Q4 2008 -1.870% 11.501% -0.9998
Q1 2009 -1.077% 11.007% -0.8100
Q2 2009 -0.434% 10.496% -0.8151
Q3 2009 0.232% 9.983% -0.9984
Q4 2009 0.858% 9.478% -0.9999 Source: Researcher‟s own calculation
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Table 8 - ROA correlation summarised data:
ROA
Period Conventional
Banks Islamic Banks
Rolling Correlation
Q1 2003 0.324% 0.955%
Q2 2003 0.372% 0.954%
Q3 2003 0.408% 0.954%
Q4 2003 0.450% 0.952% -0.7893
Q1 2004 0.508% 0.993% 0.8121
Q2 2004 0.564% 1.034% 0.9560
Q3 2004 0.620% 1.073% 0.9999
Q4 2004 0.659% 1.110% 0.9984
Q1 2005 0.654% 1.227% 0.7491
Q2 2005 0.652% 1.338% 0.4902
Q3 2005 0.651% 1.444% -0.9195
Q4 2005 0.651% 1.545% -0.9425
Q1 2006 0.671% 1.561% 0.5435
Q2 2006 0.686% 1.574% 0.6901
Q3 2006 0.706% 1.590% 0.9999
Q4 2006 0.721% 1.600% 0.9992
Q1 2007 0.645% 1.714% -0.8135
Q2 2007 0.577% 1.841% -0.9912
Q3 2007 0.514% 1.980% -0.9960
Q4 2007 0.458% 2.135% -0.9961
Q1 2008 0.260% 2.332% -0.9698
Q2 2008 0.081% 2.506% -0.9856
Q3 2008 -0.086% 2.677% -0.9999
Q4 2008 -0.230% 2.831% -0.9998
Q1 2009 -0.142% 2.698% -0.9892
Q2 2009 -0.060% 2.570% -0.9573
Q3 2009 0.034% 2.445% -0.9992
Q4 2009 0.134% 2.320% -0.9986 Source: Researcher‟s own calculation
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Correlation and rolling correlation
When a correlation was done for the two sets of data (ROE and ROA) the following results
were obtained:
Correlation of the ROE = -0.492
Correlation of the ROA = -0.746
The following figure summarises the strength and direction of the correlation:
Figure 10 - Correlation analysis (Source Lind et al (2010) Statistical Techniques in Business and Economics- page 462)
Based on the above drawing the correlation of the ROE is moderately negative and the ROA
has a strong negative correlation.
A further analysis was then conducted whereby the correlation was studied for the period
2003 to 2006 (period prior to the recession) and for the period 2007 to 2009 (during the
recession). The results from this analysis are displayed below:
Return on Equity (ROE)
2003 to 2006 0.744
2007 to 2009 -0.669
Return on Assets (ROA)
2003 to 2006 0.824
2007 to 2009 -0.983
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The above analysis provides a deeper insight into the relationship of the financial
performance between the two banking systems, prior and during that last recession. What is
evident is that from the period 2003 to 2006 there was a strong positive correlation in both
the ROE and ROA results. This indicates that prior to the recession there was a direct
relationship between the financial performances of the two banking systems.
When the recession happened in 2007 and the economic outlook changed, the correlation
between the two banking systems went from a strong positive correlation to a strong negative
correlation, and in the case of the ROA the correlation was nearly perfectly negative.
Moving to the rolling correlation, the results obtained were very similar for both the ROE and
ROA ratios. The rolling correlation was calculated by calculating the correlation between the
Islamic and conventional banking system based on the results obtained in the previous four
quarters.
The results for the rolling correlation were very similar to that noted in the correlation
analysis. A strong to nearly perfect positive correlation was noted for the period 2003 to
2006, with a decrease in the correlation occurring in 2005 only. From 2007 however, the
rolling correlation is nearly perfectly negative for the remainder of the research period.
Figure 11 - Graphic illustration of the rolling correlation of the ROE observed for both banking systems over the
research period
-1.5
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Rolling Correlation - ROE
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Figure 12 - Graphic illustration of the rolling correlation of the ROA observed for both banking systems over the
research period
Research criteria
Leedy et al. (2010) states that the validity and reliability of the data and measurement criteria
needs to be addressed prior to the researcher commencing the research. They further state that
the validity and reliability of your measurement influences the extent to which you can learn
something about the phenomenon that you are studying, the probability that you will gain
statistical significance from the data you are analysing, and the extent to which you can draw
meaningful conclusions from your data.
Leedy et al. (2010) further defines validity and reliability individually and the criteria
required to ensure these concerns are addressed.
Validity
Validity refers to the extent to which the instrument of measure, measures what it is intended
to measure. For example, there is no doubt that a thermometer measures temperature, but it
would not be accurate to measure peoples‟ annual incomes to determine their social class.
The question that needs to be answered is; does this test, in fact, measure what it is intended
to measure or does it measure something else?
Relating validity back to the study conducted, it is a well documented fact that ROE and
ROA measures the performance of a company, to which Correia et al. (2000) and Karr (2005)
are in agreement. ROE and ROA are therefore valid measures of a bank‟s performance.
-1.5
-1
-0.5
0
0.5
1
1.5
Q1
20
03
Q2
20
03
Q3
20
03
Q4
20
03
Q1
20
04
Q2
20
04
Q3
20
04
Q4
20
04
Q1
20
05
Q2
20
05
Q3
20
05
Q4
20
05
Q1
20
06
Q2
20
06
Q3
20
06
Q4
20
06
Q1
20
07
Q2
20
07
Q3
20
07
Q4
20
07
Q1
20
08
Q2
20
08
Q3
20
08
Q4
20
08
Q1
20
09
Q2
20
09
Q3
20
09
Q4
20
09
Rolling Correlation - ROA
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Reliability
Reliability measures the consistency with which the measuring instruments yield results
when the entity being measured has not changed. Relating it to the study conducted, no
judgement will be required when calculating the performance of a bank. All that is required
are three variables, i.e. net profit for the year, total assets and total shareholders‟ equity. With
these three pieces of information the ROE and ROA ratios can be calculated. The data used
can therefore be considered to be reliable.
Research limitations
The research limitations identified all relate to the data used in this research:
The financial data for Islamic banks proved at times difficult to obtain as some of the Islamic
banks were privately owned or located in countries in which do not make financial
information freely available. For this reason at least six of the top fifteen Islamic banks in the
world were excluded from the sample of Islamic banks used in this research. Islamic banks
outside the top fifteen in the world and for which financial information was obtainable were
therefore used when performing this research.
It was the researcher‟s original intention to study the performance of the banking systems for
a period of ten years from 2000 to 2009. Once again obtaining financial information for the
Islamic banks dating this far back proved difficult. The researcher was able to obtain
financial information for both banking systems from 2003. The research period was therefore
decreased to seven years.
The financial information obtained was only in annual form. It would have made for a much
better analysis should the financial information have been available on a monthly or quarterly
basis. An exercise was however conducted whereby the annual data was converted to
quarterly data. This allowed for the data to be smoothed from one year to the next.
The financial information used in this analysis was obtained in the reporting currency of the
banks selected. An exercise was then performed whereby the data was converted from the
reporting currency to US dollars. This conversion was done by converting the financial data
at the spot rate at the end of each quarter. The correct manner of translating would have been
to translate all transactions at the spot rate when the transactions occurred. This was however
not possible as the financial data was only obtained in an annual format.
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V. RESEARCH CONCLUSIONS
Perry (1998) likened the importance of the conclusion section of a research report to that of
solving a puzzle. The researcher starts with the literature review, which is the beginning of
putting the pieces together. This research however shows that there are some pieces missing.
The methodology and the analysis describe the search for those missing pieces. The
conclusion therefore briefly summarises what the picture looked like at the end of the
literature review and then explains how the pieces fit together to make the whole picture.
The researcher began his inquisition based on a statement made by the chairman of the world
economic forum from where he said “Today we have reached a tipping point which leaves us
with only one choice: change or face the continued decline and misery.” This statement was
made when analysing the aftermath of the global recession which was also known as a
banking crisis. The key message in this statement was the requirement for change. Being a
Muslim, the researcher began to explore the principles of Islamic banking which he found to
be significantly different from conventional banking. These principles were more
conservative than the conventional banking principles, which left the researcher wondering
whether this could be one of the possible alternatives that is required to implement change as
mentioned by the chairman of the world economic forum.
Usmani (2009) further stated that there has been number of articles claiming that Islamic
banks have remained unaffected by the last recession, however many of these claims have
been unsubstantiated. The researcher therefore set out, using a quantitative approach to
analyse the financial performance of Islamic banking when compared to conventional
banking. An analysis was performed whereby 30 bank‟s (15 Islamic and 15 conventional
banks) performances were analysed for a period of seven years (2003 to 2009) using the
bank‟s ROE and ROA as a measure of performance.
The research problem and objective was to analyse the stability/volatility of the performance
and the following research questions were analysed:
i. When performing a trend analysis, is there a significant deviation in performance
of the ROE and ROA of the two banking systems in the last recession?
ii. Does the standard deviation and the rolling standard deviation increase between
the two banking system‟s ROE and ROA when faced with a recession?
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iii. Is there a negative correlation and rolling correlation of the between the two
banking systems during the last recession?
Conclusions about research questions.
Although three separate questions were asked, all three questions deal with volatility/stability
of the Islamic banking system when compared to the conventional banking system,
particularly when analysing their performance in the last recession.
Based on the analysis performed in the previous section, the following conclusions have been
reached for the three questions asked:
Question i
The Islamic banking conversion appears to be more stable when performing a trend analysis
for the following reasons
1. When analysing the trend analysis for the two banking systems, the ROE and ROA
for Islamic banks are more stable than its conventional counterpart. When comparing
the performance of the two banking systems in the last recession, the Islamic bank‟s
ROE and ROA dropped off slightly from its peak in 2008, however this drop off in
performance is significantly less than the conventional banks.
2. The range of financial performances is much wider in the conventional banks.
Furthermore, when analysing the recessionary period of 2007 to 2009 for the two
banking systems, the difference in the size of the range is significant. Wegner (2008)
states that the extent to which data is dispersed measures stability or variability.
Question ii
The Islamic banks financial performance based on ROE and ROA appears to be more stable
than conventional banks when the standard deviation is analysed for the following reasons:
1. The standard deviation, which measures the deviation from the mean (Lind et al.
(2008)), between the two banking systems peaks in 2008 which coincides with the
recession.
2. The rolling standard deviation further corroborates the findings above as the rolling
deviation, which is based on the standard deviation experienced in the financial
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performance for the previous four quarters, also peaks during the recessionary period
for the conventional banks.
Question iii
The correlation, which measures the relationship between two variables (Lind et al. (2008)),
indicated that the Islamic banks are more stable for the following reasons.
1. When a correlation analysis is performed on the financial performance (ROE and
ROA) for the period 2003 to 2006 (prior to the recession), there is a strong positive
correlation. The inverse is true for the period 2007 to 2009 (during the recession).
This finding is therefore indicative that during a time of extreme economic
uncertainty the Islamic banking system‟s financial performance was less affected than
the conventional banking system‟s financial performance.
2. The rolling correlation further corroborates the above finding, whereby the rolling
correlation for both the ROE and ROA is nearly perfectly positively correlated for the
period 2003 to 2006. For the period 2007 to 2009, during the recessionary period the
correlation is nearly perfectly negatively correlated.
Conclusion to the research problem.
The quantitative analysis performed specifically addressed the aspect of stability in the
financial performances experienced in the two banking systems in the last recession. While it
may be inappropriate to conclude that Islamic banking reacted or performed better in the last
recessionary period, it is however clearly evident that the correlation and standard deviation
of the Islamic bank‟s financial performance are much more resilient when faced with times of
extreme economic hardship.
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VI. FUTURE RESEARCH DIRECTION
Although the initial results of this analysis revealed that the financial performance of Islamic
banks experienced less variability than its conventional counterpart, it is recommended that
future studies could result in a better understanding of the researcher‟s limitations. The two
greatest limitations with data used in this analysis were the geographic locations of the
Islamic banks as well as the relative size of the banks sampled across the two banking
systems.
These particular limitations can be overcome by studying and comparing the financial
performance of conventional banks that have an Islamic banking division. In so doing the
element of geographic and size bias will be removed and two departments can be compared
that operate in the same operating environment.
A further study that may be of particular interest is an analysis of which principles of Islamic
finance contribute significantly to the stability of this banking system.
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VII. BIBLIOGRAPHY
Ahmad, S. M. (1992). Towards Interest-Free Banking. Islamic Economics, 4(May
1990), 81-87.
Ahmed, Z., Iqbal, M., & Khan, M. F. (1983). Money and banking in Islam. Jeddah.
Al-Jarhi, M. A., & Iqbal, M. (2001). ISLAMIC BANKING : ANSWERS TO SOME
FREQUENTLY ASKED QUESTIONS. Retrieved from
http://www.isu.ac.ir/farsi/acedemics/economics/edu/New_Folder/dlc1/Lectures/general/FAQ
s.pdf.
Alsayyed, N. (2009). Shari ‟ ah Parameters of Islamic Derivatives In Islamic Banking
and Finance. Group.
Caballero, R. J. (2009). Discussion of “ Global Imbalances and the Financial Crisis :
Products of Common Causes.
Caprio, G., & Honohan, P. (1999). Restoring Banking Stability : Beyond Supervised
Capital Requirements. Journal of Economic Perspectives, 13(4), 43- 64.
Carr, M. (2009). A Discourse on Ribain the light of the Quran and Sunnah. Cape
Town: Dar al-Turath al Islami Publishing House.
Chapra, M. U. (2008). The global financial crisis: can islamic finance help minimize
the severity and frequency of such a crisis in the future? A paper prepared for presentation at
the forum on the Global Financial Crisis held at the Islamic Development Bank on 25
October 2008.
Consultans, H. (2010). Islamic banking. Retrieved from
http://www.healyconsultants.com/company-incorporation/islamic-banking.html.
Correia, C., Flynn, D., Uliana, E., & Wormold, M. (2000). Financial Management.
(F. Edition). Cape Town: Juta & Co Ltd.
Creswell, J. W. (2009). Research Design. Sage Publication Ltd.
Crotty, J. (2008). Structural causes of the Global Financial Crisis: A Critical
Assessment of the 'New Financial Architecture'. Cambridge Journal of Economics, (180).
Ebrahim, M. S., & Joo, T. K. (2001). Islamic banking in Brunei Darussalam.
International Journal of Social Economics, 28(4), 314 - 337.
El-gamal, M. A. (2000). Basic Guide to Contemporary Islamic Banking and Finance.
Retrieved from http://www.lariba.com/dev/knowledge-center/islamic-banking-guide.pdf.
Gaudian.co.uk. (n.d.). The world ' s top 50 banks. Retrieved from
Http://www.gaurdian.co.uk/news.
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Hasan, Z. (2005). Islamic banking at the crossraods: theory versus practice. Retrieved
from http://mpra.ub.uni-muenchen.de/2821/.
Hassan, M. K., & Bashir, A. H. (2003). Determinants ofIslamic banking profitability.
New Orleans. Retrieved from http://www.nzibo.com/IB2/Determinants.pdf.
Hassoune, A. (2002). ISLAMIC BANKS ‟ PROFITABILITY IN AN INTEREST
RATE CYCLE. International Journal, 4(2).
Hosein, I. N. (1997). The Prohibition of Riba in the Quran and Sunnah. New York:
Masjid Dar al-Quran.
Humayon, D. A., & Presley, J. R. (2003). ISLAMIC FINANCE : A WESTERN
PERSPECTIVE. International Journal of Islamic Financial Services, 1(1).
Kahf, M., & Khan, T. (1992). PRINCIPLES OF ISLAMIC FINANCING : A SURVEY.
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Karr, J. (2005). Performance Measurement in Banking : Beyond ROE. Journal of
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Kosmidou, K., & Zopounidis, C. (2008). MEASUREMENT OF BANK
PERFORMANCE IN GREECE. South-Eastern Europe Journal of Economics, 1, 79-95.
Leedy, P. D., & Ormrod, J. E. (2010). Practical Research (Nineth edi.). Pearson
Education Inc.
Lind, D. A., Marchal, W. G., & Wathen, S. A. (2008). Statistical Techniques in
Business and Economics. (M. Hill) (thirteenth.). New York.
McClave, J., Benson, G., & Sincich, T. (2010). Statistics for business and economics
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Mirakhor, A. (1997). Progress and Challenges of Islamic Banking. Retrieved from
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Perry, C. (1998). A structured approach to presenting theses. Retrieved from
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Samad, A., & Hassan, M. K. (2004). The performance of malaysian islamic bank
during 1984-1997 : an exploratory study. International Journal of Islamic Financial Services,
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Siddiqi, M. N. (1983). Issues in Islamic Banking, 1(1), 57-59.
Smolo, E. (2010). The global financial crisis and its implications for the Islamic
financial industry, 3(4), 372 - 385.
Sol, J. (2007). Introducing Islamic Banks into Conventional Banking Systems.
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Tahir, S. (2003). Current Issues in the Practice of Islamic Banking. Retrieved from
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Taleb, N. N. (2009). How bank bonuses let us all down. Financial Times.
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www.awqafsa.org.za/.../Mufti Taqi Usmani.
Waters, D. (1994). Quantitative Methods for Business. Addison-Wesley.
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Ltd.
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banks (Vol. 44). Leicestershire. Retrieved from http://129.3.20.41/econ-
wp/fin/papers/0406/0406007.pdf.
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VIII. APPENDICES
Appendix 1 - Definitions
Fractional-reserve banking - banking practice in which banks keep only a fraction of their
deposits in reserve and create the remainder as 'cheque book money', while maintaining the
simultaneous obligation to redeem all these deposits upon demand. Fractional reserve
banking necessarily occurs when banks lend out funds that it does not have on deposit instead
of funds solely received from deposit accounts. This is practiced by all modern commercial
banks.
Shariah - the code of law derived from the Quran and from the teachings and example of
Mohammed (SAW).
Financial performance – when referring to financial performance the researcher is referring
to the return on assets (ROA) and the return on equity (ROE).
Stability – when referring to stability the researcher is referring to the variability of the return
on assets (ROA) and return on equity (ROE).
Recession / financial crisis / banking crisis – when these terms are used it refers to the
global financial crisis of 2007 to 2010.
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Appendix 2 – Original sample of banks selected to be tested
Table 9 - Original sample of banks selected
Rank Conventional bank Islamic bank
1 Royal bank of Scotland Al Rajhi Bank
2 Deutsche Bank Bank Mellat
3 BNP Paribas Bank Saderat Iran
4 Barclays Kuwait Finance House
5 HSBC Bank Tejarat
6 Credit Agricole Group Bank Sepah
7 City Group Dubai Islamic Bank
8 UBS Bank Maskan
9 Mitsubishi UFJ Financial Group Agricultural Bank of Iran
10 Bank of America Abu Dhabi Islamic Bank
11 Societe Generale Albaraka Banking Group
12 JP Morgan Chase Qatar Islamic Bank
13 Unicredit Maybank Islamic
14 Mizuho Financial Group Emirates Islamic Bank
15 ING Bank Bank Islam Malaysia
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Appendix 3 – Aggregation of ROE & ROA percentages for Islamic banks
Table 10 - Islamic Banking - Return on Equity (Percentage basis)
MO
NT
H
AL
RA
JH
I B
AN
K
KU
WA
IT F
INA
NC
E H
OU
SE
DU
BA
I ISL
AM
IC
BA
NK
AB
U D
HA
BI I
SLA
MIC
BA
NK
QA
TAR
INTL
.ISL
AM
IC
BA
NK
AL
BA
RA
KA
B
AN
KIN
G G
RO
UP
ALB
AR
AK
A T
UR
K
ASY
A K
ATI
LIM
B
AN
KA
SI
BA
HR
AIN
ISLA
MIC
BA
NK
CIM
B G
RO
UP
H
OLD
ING
S
BA
NK
ISLA
M
BA
NK
SA
DER
AT
PLC
JOR
DA
N IS
LAM
IC
BA
NK
KU
WA
IT IN
TL.B
AN
K
RH
B C
AP
.
AV
ERA
GE
Q1 2003 28.12% 18.70% 14.03% 7.18% 20.58% 8.75% 0.00% 0.00% 6.16% 7.48% 7.03% 4.93% 5.56% 8.95% 5.25% 9.51%
Q2 2003 28.12% 18.70% 14.03% 7.18% 20.58% 8.75% 0.00% 0.00% 6.16% 7.48% 7.03% 4.93% 5.56% 8.95% 5.25% 9.51%
Q3 2003 28.12% 18.70% 14.03% 7.18% 20.58% 8.75% 0.00% 0.00% 6.16% 7.48% 7.03% 4.93% 5.56% 8.95% 5.25% 9.51%
Q4 2003 28.12% 18.70% 14.03% 7.18% 20.58% 8.75% 0.00% 0.00% 6.16% 7.48% 7.03% 4.93% 5.56% 8.95% 5.25% 9.51%
Q1 2004 29.89% 19.17% 14.55% 7.44% 20.13% 8.97% 21.52% 23.44% 6.42% 7.14% 6.88% 5.20% 5.58% 10.01% 5.09% 12.76%
Q2 2004 31.51% 19.60% 14.92% 7.69% 19.75% 9.18% 21.52% 23.44% 6.65% 6.83% 6.74% 5.46% 5.59% 11.15% 4.93% 13.00%
Q3 2004 33.01% 20.01% 15.21% 7.93% 19.44% 9.37% 21.52% 23.44% 6.85% 6.55% 6.60% 5.72% 5.61% 12.38% 4.77% 13.23%
Q4 2004 34.39% 20.38% 15.44% 8.16% 19.16% 9.55% 21.52% 23.44% 7.02% 6.29% 6.47% 5.98% 5.63% 13.70% 4.61% 13.45%
Q1 2005 36.96% 19.08% 19.11% 10.92% 32.67% 10.75% 22.66% 24.61% 8.04% 6.34% -6.66% 6.59% 9.39% 11.52% 4.64% 14.44%
Q2 2005 38.94% 18.21% 22.33% 13.28% 41.63% 11.77% 23.67% 25.41% 8.90% 6.39% -22.79% 7.16% 12.82% 9.39% 4.65% 14.78%
Q3 2005 40.53% 17.59% 25.17% 15.31% 48.01% 12.65% 24.58% 25.99% 9.64% 6.44% -43.09% 7.70% 15.96% 7.33% 4.67% 14.56%
Q4 2005 41.82% 17.12% 27.70% 17.10% 52.77% 13.41% 25.39% 26.42% 10.28% 6.49% -69.41% 8.21% 18.85% 5.33% 4.69% 13.74%
Q1 2006 38.75% 16.34% 23.31% 13.64% 44.14% 12.31% 26.26% 24.33% 12.12% 6.49% -147.29% 8.53% 16.91% 5.28% 5.01% 7.08%
Q2 2006 36.41% 15.77% 20.67% 11.85% 37.54% 11.45% 27.01% 23.09% 13.92% 6.48% -398.72% 8.85% 15.46% 5.24% 5.32% -10.64%
Q3 2006 34.58% 15.33% 18.91% 10.74% 32.33% 10.77% 27.65% 22.27% 15.69% 6.48% 4255.10% 9.17% 14.33% 5.20% 5.61% 298.94%
Q4 2006 33.11% 14.98% 17.65% 10.00% 28.12% 10.21% 28.21% 21.69% 17.42% 6.48% 466.74% 9.50% 13.42% 5.15% 5.89% 45.91%
Q1 2007 30.94% 14.88% 16.48% 9.74% 25.37% 11.00% 23.05% 20.25% 15.58% 7.79% -2024.39% 9.48% 14.46% 6.08% 6.07% -120.88%
Q2 2007 28.93% 14.80% 15.54% 9.52% 23.29% 11.68% 19.80% 19.10% 14.53% 9.08% -144.54% 9.46% 15.43% 6.94% 6.23% 3.99%
Q3 2007 27.06% 14.74% 14.77% 9.35% 21.67% 12.29% 17.56% 18.15% 13.85% 10.34% -21.68% 9.44% 16.33% 7.74% 6.37% 11.86%
Q4 2007 25.31% 14.70% 14.13% 9.20% 20.37% 12.82% 15.92% 17.37% 13.37% 11.58% 22.92% 9.42% 17.16% 8.49% 6.50% 14.62%
Q1 2008 25.00% 13.78% 14.27% 9.38% 19.71% 12.91% 17.47% 16.54% 13.38% 10.34% 24.85% 9.98% 18.48% 9.00% 7.18% 14.82%
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Q2 2008 24.71% 12.74% 14.42% 9.57% 19.10% 13.00% 18.88% 15.83% 13.39% 9.18% 26.54% 10.46% 19.67% 9.55% 7.91% 15.00%
Q3 2008 24.42% 11.57% 14.59% 9.75% 18.54% 13.09% 20.17% 15.22% 13.40% 8.11% 28.03% 10.88% 20.76% 10.14% 8.69% 15.16%
Q4 2008 24.14% 10.22% 14.77% 9.93% 18.03% 13.19% 21.35% 14.70% 13.41% 7.10% 29.35% 11.24% 21.75% 10.78% 9.54% 15.30%
Q1 2009 23.98% 8.70% 12.73% 6.92% 16.60% 12.10% 19.58% 14.83% 7.43% 7.63% 24.11% 10.77% 20.13% 7.08% 9.53% 13.47%
Q2 2009 23.83% 7.17% 10.95% 4.45% 15.39% 11.11% 17.91% 14.96% 0.95% 8.12% 19.26% 10.30% 18.59% 3.26% 9.52% 11.72%
Q3 2009 23.69% 5.66% 9.39% 2.39% 14.35% 10.19% 16.32% 15.08% -6.10% 8.58% 14.76% 9.83% 17.12% -0.68% 9.51% 10.01%
Q4 2009 23.55% 4.16% 8.00% 0.63% 13.46% 9.34% 14.81% 15.18% -13.81% 9.01% 10.57% 9.35% 15.72% -4.75% 9.50% 8.32%
Graphically displayed:
Figure 13 - Return on Equity (percentage basis)
-150.00%-100.00%
-50.00%0.00%
50.00%100.00%150.00%200.00%250.00%300.00%350.00%
Q1
20
03
Q3
20
03
Q1
20
04
Q3
20
04
Q1
20
05
Q3
20
05
Q1
20
06
Q3
20
06
Q1
20
07
Q3
20
07
Q1
20
08
Q3
20
08
Q1
20
09
Q3
20
09
ROE Islamic banking
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Table 11 - Islamic Banking - Return on Assets (percentage basis)
MO
NT
H
AL
RA
JH
I B
AN
K
KU
WA
IT F
INA
NC
E H
OU
SE
DU
BA
I ISL
AM
IC
BA
NK
AB
U D
HA
BI I
SLA
MIC
B
AN
K
QA
TAR
INTL
.ISL
AM
IC
BA
NK
AL
BA
RA
KA
B
AN
KIN
G G
RO
UP
ALB
AR
AK
A T
UR
K
ASY
A K
ATI
LIM
BA
NK
ASI
BA
HR
AIN
ISLA
MIC
BA
NK
CIM
B G
RO
UP
H
OLD
ING
S
BA
NK
ISLA
M
BA
NK
SA
DER
AT
PLC
JOR
DA
N IS
LAM
IC
BA
NK
KU
WA
IT IN
TL.B
AN
K
RH
B C
AP
.
AV
ERA
GE
Q1 2003 3.15% 2.00% 1.05% 1.09% 1.65% 1.04% 0.00% 0.00% 1.06% 0.97% 0.57% 0.91% 0.32% 2.64% 0.62% 1.14%
Q2 2003 3.15% 2.00% 1.05% 1.09% 1.65% 1.04% 0.00% 0.00% 1.06% 0.97% 0.57% 0.91% 0.32% 2.64% 0.62% 1.14%
Q3 2003 3.15% 2.00% 1.05% 1.09% 1.65% 1.04% 0.00% 0.00% 1.06% 0.97% 0.57% 0.91% 0.32% 2.64% 0.62% 1.14%
Q4 2003 3.15% 2.00% 1.05% 1.09% 1.65% 1.04% 0.00% 0.00% 1.06% 0.97% 0.57% 0.91% 0.32% 2.64% 0.62% 1.14%
Q1 2004 3.33% 2.06% 1.19% 1.05% 1.66% 1.05% 2.16% 1.96% 1.17% 0.94% 0.57% 0.95% 0.32% 2.79% 0.58% 1.45%
Q2 2004 3.49% 2.12% 1.31% 1.02% 1.67% 1.06% 2.16% 1.96% 1.27% 0.91% 0.58% 0.99% 0.31% 2.93% 0.55% 1.49%
Q3 2004 3.64% 2.18% 1.42% 0.99% 1.68% 1.06% 2.16% 1.96% 1.36% 0.88% 0.58% 1.03% 0.30% 3.06% 0.52% 1.52%
Q4 2004 3.77% 2.24% 1.51% 0.97% 1.69% 1.07% 2.16% 1.96% 1.45% 0.85% 0.58% 1.07% 0.29% 3.19% 0.49% 1.55%
Q1 2005 4.39% 2.40% 1.81% 1.18% 3.38% 1.24% 2.22% 2.34% 1.71% 0.86% -0.51% 1.18% 0.49% 2.70% 0.49% 1.72%
Q2 2005 4.96% 2.54% 2.07% 1.34% 4.86% 1.39% 2.28% 2.65% 1.93% 0.88% -1.50% 1.28% 0.67% 2.21% 0.48% 1.87%
Q3 2005 5.46% 2.65% 2.29% 1.46% 6.18% 1.52% 2.33% 2.93% 2.13% 0.89% -2.39% 1.38% 0.84% 1.73% 0.48% 1.99%
Q4 2005 5.93% 2.76% 2.47% 1.55% 7.35% 1.64% 2.37% 3.16% 2.30% 0.91% -3.20% 1.47% 0.99% 1.27% 0.48% 2.10%
Q1 2006 6.20% 2.85% 2.46% 1.56% 6.56% 1.64% 2.49% 3.38% 2.52% 0.93% -4.53% 1.49% 1.01% 1.24% 0.51% 2.02%
Q2 2006 6.46% 2.93% 2.46% 1.57% 5.89% 1.63% 2.60% 3.54% 2.70% 0.95% -5.92% 1.50% 1.03% 1.22% 0.53% 1.94%
Q3 2006 6.71% 3.00% 2.45% 1.57% 5.30% 1.63% 2.70% 3.67% 2.86% 0.97% -7.37% 1.52% 1.04% 1.20% 0.56% 1.85%
Q4 2006 6.94% 3.06% 2.45% 1.58% 4.78% 1.62% 2.79% 3.78% 2.99% 0.99% -8.88% 1.53% 1.06% 1.18% 0.58% 1.76%
Q1 2007 6.44% 3.26% 2.39% 1.63% 4.79% 1.74% 2.63% 3.55% 3.26% 1.15% -5.81% 1.64% 1.16% 1.38% 0.63% 1.99%
Q2 2007 5.98% 3.43% 2.34% 1.67% 4.80% 1.84% 2.50% 3.36% 3.48% 1.31% -3.16% 1.76% 1.26% 1.57% 0.68% 2.19%
Q3 2007 5.55% 3.58% 2.30% 1.71% 4.81% 1.92% 2.39% 3.21% 3.65% 1.46% -0.83% 1.91% 1.35% 1.74% 0.73% 2.37%
Q4 2007 5.16% 3.70% 2.26% 1.75% 4.82% 1.99% 2.30% 3.08% 3.80% 1.59% 1.22% 2.07% 1.44% 1.90% 0.78% 2.52%
Copyright UCT
64
Q1 2008 4.80% 3.12% 2.21% 1.72% 4.55% 1.96% 2.47% 2.98% 3.42% 1.43% 1.34% 2.33% 1.57% 1.88% 0.84% 2.44%
Q2 2008 4.48% 2.59% 2.15% 1.70% 4.30% 1.93% 2.61% 2.89% 3.09% 1.28% 1.45% 2.57% 1.69% 1.87% 0.89% 2.37%
Q3 2008 4.20% 2.11% 2.09% 1.68% 4.09% 1.90% 2.74% 2.81% 2.80% 1.13% 1.54% 2.81% 1.80% 1.85% 0.95% 2.30%
Q4 2008 3.96% 1.67% 2.03% 1.66% 3.90% 1.88% 2.85% 2.74% 2.55% 1.00% 1.63% 3.03% 1.90% 1.84% 1.01% 2.24%
Q1 2009 3.96% 1.40% 1.88% 1.21% 3.66% 1.70% 2.48% 2.62% 1.35% 1.07% 1.34% 2.91% 1.73% 1.17% 1.02% 1.97%
Q2 2009 3.96% 1.14% 1.74% 0.81% 3.44% 1.54% 2.16% 2.52% 0.16% 1.14% 1.07% 2.78% 1.56% 0.53% 1.03% 1.70%
Q3 2009 3.96% 0.88% 1.59% 0.45% 3.26% 1.40% 1.88% 2.44% -0.99% 1.20% 0.82% 2.65% 1.41% -0.11% 1.04% 1.46%
Q4 2009 3.96% 0.64% 1.44% 0.12% 3.09% 1.27% 1.64% 2.37% -2.13% 1.26% 0.58% 2.53% 1.28% -0.72% 1.05% 1.23%
Graphically displayed:
Figure 14 - Return on Assets (percentage basis)
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Q1
20
03
Q3
20
03
Q1
20
04
Q3
20
04
Q1
20
05
Q3
20
05
Q1
20
06
Q3
20
06
Q1
20
07
Q3
20
07
Q1
20
08
Q3
20
08
Q1
20
09
Q3
20
09
ROA - Islamic banking
Copyright UCT
65
Appendix 4 – Foreign currency translation of conventional banking financial data
Table 12 - Conventional Banks - Net Profit After Tax
MO
NT
H
RO
YA
L B
AN
K
OF
SC
TL
.GP
.
DEU
TSC
HE
BA
NK
BN
P P
AR
IBA
S
BA
RC
LAY
S
HSB
C H
DG
.
CR
EDIT
A
GR
ICO
LE
CIT
IGR
OU
P
UB
S 'R
'
MIT
SUB
ISH
I UFJ
FI
NL.
GP
.
BA
NK
OF
AM
ERIC
A
SOC
IETE
G
ENER
ALE
JP M
OR
GA
N
CH
ASE
& C
O.
UN
ICR
EDIT
MIZ
UH
O
FIN
L.G
P.
CR
EDIT
SU
ISSE
G
RO
UP
N
AV
ERA
GE
Q1 2003 5 742 545 799 988 4 160 102 3 943 960 8 201 444 1 238 360 14 688 750 3 463 534 -1 204 093 9 639 250 2 278 039 2 927 000 2 210 287 -19 897 133 -917 474 2 484 971
Q2 2003 6 294 476 1 292 507 4 617 119 4 227 595 8 869 607 1 399 868 15 838 500 4 144 625 -1 274 191 10 029 500 2 777 668 4 191 000 2 416 693 -20 121 684 702 897 3 027 079
Q3 2003 6 674 545 1 695 856 4 679 226 4 394 788 9 294 319 1 442 989 16 988 250 4 593 493 -1 390 713 10 419 750 3 052 893 5 455 000 2 414 471 -21 029 151 2 299 611 3 399 022
Q4 2003 7 606 462 2 285 855 5 192 825 4 920 245 10 481 071 1 626 790 18 138 000 5 467 452 -1 495 255 10 810 000 3 636 875 6 719 000 2 643 148 -21 688 916 4 161 925 4 033 698
Q1 2004 8 353 527 2 450 903 5 619 144 5 498 827 11 730 988 2 056 691 17 921 748 5 918 174 300 998 11 643 250 3 906 581 6 155 750 2 768 618 -15 664 358 4 579 380 4 882 681
Q2 2004 8 351 752 2 459 836 5 686 551 5 587 682 11 936 717 2 349 574 17 705 495 6 196 160 2 143 737 12 476 500 3 927 313 5 592 500 2 718 993 -8 936 522 4 863 107 5 537 293
Q3 2004 8 660 454 2 585 346 6 021 778 5 882 520 12 582 169 2 743 601 17 489 243 6 625 474 3 835 279 13 309 750 4 133 937 5 029 250 2 800 363 -2 135 708 5 265 231 6 321 912
Q4 2004 9 263 264 2 957 755 6 936 510 6 381 446 13 664 902 3 426 568 17 272 990 7 563 846 5 921 954 14 143 000 4 735 962 4 466 000 3 143 532 4 567 668 6 077 474 7 368 191
Q1 2005 9 533 033 3 293 586 7 302 447 6 565 042 14 188 387 3 995 621 18 043 490 7 941 225 5 377 473 14 723 500 5 200 757 5 470 250 3 249 474 5 124 034 6 261 161 7 751 299
Q2 2005 9 854 542 3 526 419 7 455 088 6 784 307 14 786 808 4 433 287 18 813 990 8 109 662 4 705 342 15 304 000 5 505 518 6 474 500 3 262 767 5 534 887 6 284 466 8 055 706
Q3 2005 9 846 695 3 711 867 7 532 313 6 776 916 14 886 076 4 800 815 19 584 490 8 183 972 3 987 574 15 884 500 5 740 584 7 478 750 3 246 956 5 813 751 6 242 376 8 247 842
Q4 2005 9 878 189 3 918 126 7 672 692 6 796 738 15 037 221 5 186 329 20 354 990 8 285 550 3 337 358 16 465 000 6 011 455 8 483 000 3 261 802 6 087 537 6 228 366 8 466 957
Q1 2006 10 334 147 4 654 397 8 215 128 7 414 777 15 164 107 5 566 607 20 650 743 8 637 157 4 405 558 17 631 998 6 334 022 9 774 500 4 340 335 6 161 111 7 085 969 9 091 370
Q2 2006 11 428 918 5 638 078 9 146 301 8 509 379 16 194 428 6 211 100 20 946 495 9 389 949 5 711 290 18 798 995 6 950 255 11 066 000 5 674 404 6 513 576 8 308 768 10 032 529
Q3 2006 11 968 829 6 354 834 9 611 185 9 209 700 16 403 412 6 539 553 21 242 248 9 472 004 6 566 090 19 965 993 7 207 580 12 357 500 6 757 055 6 351 635 8 955 327 10 597 530
Q4 2006 12 895 246 7 320 799 10 434 611 10 219 735 17 119 168 7 112 321 21 538 000 10 003 802 7 578 471 21 132 990 7 731 074 13 649 000 8 114 197 6 389 525 10 029 062 11 417 867
Q1 2007 13 612 088 7 575 355 10 631 225 10 206 950 17 583 347 6 876 210 17 129 000 6 526 651 7 776 606 19 595 243 6 351 265 14 078 000 8 339 246 6 299 805 10 026 019 10 840 467
Q2 2007 14 439 677 7 973 971 11 026 202 10 269 333 18 183 974 6 759 782 12 720 000 3 183 795 7 853 486 18 057 495 5 054 445 14 507 000 8 721 573 6 118 614 10 178 553 10 336 527
Q3 2007 15 511 670 8 572 154 11 686 900 10 486 036 19 076 019 6 782 764 8 311 000 -184 384 8 530 144 16 519 748 3 782 599 14 936 000 9 318 661 6 397 020 10 629 486 10 023 721
Q4 2007 16 607 153 9 248 109 12 439 074 10 692 653 19 975 163 6 824 952 3 902 000 -3 901 225 9 141 560 14 982 000 2 400 707 15 365 000 9 995 295 6 604 278 11 483 162 9 717 325
Q1 2008 -7 547 260 5 817 286 11 285 876 10 419 298 15 780 273 5 931 397 -5 184 248 -8 629 670 9 558 306 12 238 500 3 015 796 12 448 500 9 766 634 6 423 150 7 768 911 5 939 517
Copyright UCT
66
Q2 2008 -30 570 715 1 820 559 9 421 575 10 351 299 12 095 083 4 643 908 -14 270 495 -12 523 882 8 535 223 9 495 000 3 505 758 9 532 000 8 976 666 5 239 115 2 499 417 1 916 701
Q3 2008 -54 012 697 -2 221 001 7 485 000 10 517 923 8 726 642 3 317 667 -23 356 743 -16 434 438 7 583 544 6 751 500 3 978 875 6 615 500 8 126 211 4 140 634 -2 540 212 -2 088 106
Q4 2008 -68 539 900 -5 749 241 5 080 999 9 425 488 4 693 814 1 822 212 -32 442 990 -19 764 016 8 204 110 4 008 000 4 081 579 3 699 000 6 666 680 3 822 453 -7 278 695 -5 484 701
Q1 2009 -45 067 344 -2 388 213 5 919 532 7 416 418 4 229 451 1 759 328 -24 598 743 -14 998 818 5 571 178 3 896 500 3 315 712 5 687 250 5 494 833 1 250 573 -3 746 349 -3 083 913
Q2 2009 -33 963 530 732 774 7 116 942 7 325 500 4 815 864 1 811 142 -16 754 495 -10 674 661 2 823 738 3 785 000 2 782 677 7 675 500 4 706 332 -1 208 003 -373 036 -1 293 217
Q3 2009 -19 180 192 4 036 826 8 488 541 6 691 082 5 115 123 1 893 352 -8 910 248 -6 583 393 449 245 3 673 500 2 262 597 9 663 750 3 945 966 -3 826 126 3 121 055 722 739
Q4 2009 -3 753 667 7 463 456 9 804 873 5 868 481 5 276 799 1 950 676 -1 066 000 -2 134 097 -2 186 473 3 562 000 1 678 066 11 652 000 3 081 432 -6 589 766 6 816 414 2 761 613
Table 13 - Conventional Banks - Total Assets
MO
NT
H
RO
YA
L B
AN
K
OF
SC
TL
.GP
.
DEU
TSC
HE
BA
NK
BN
P P
AR
IBA
S
BA
RC
LAY
S
HSB
C H
DG
.
CR
EDIT
AG
RIC
OLE
CIT
IGR
OU
P
UB
S 'R
'
MIT
SUB
ISH
I UFJ
FI
NL.
GP
.
BA
NK
OF
AM
ERIC
A
SOC
IETE
G
ENER
ALE
JP M
OR
GA
N
CH
ASE
& C
O.
UN
ICR
EDIT
MIZ
UH
O
FIN
L.G
P.
CR
EDIT
SU
ISSE
G
RO
UP
N
AV
ERA
GE
Q1 2003 700 737 432 848 862 099 806 397 771 684 586 877 824 106 015 637 840 474 1 138 900 500 929 507 175 844 867 227 679 454 725 566 140 655 761 827 925 242 873 162 1 133 701 988 715 480 931 767 685 664
Q2 2003 733 150 752 927 162 796 889 589 011 715 396 711 885 948 272 769 902 789 1 180 611 000 1 002 142 728 852 992 375 698 451 450 620 643 026 764 855 950 268 847 213 1 146 496 530 742 580 517 813 251 408
Q3 2003 745 175 097 925 371 460 896 406 873 726 301 779 923 416 288 839 389 402 1 222 321 500 1 017 666 116 889 988 140 717 448 175 621 654 207 767 883 975 271 788 892 1 198 202 310 727 081 117 832 673 022
Q4 2003 816 945 101 1 012 017 457 989 410 895 795 389 333 1 036 304 938 993 394 127 1 264 032 000 1 124 137 378 916 390 978 736 444 900 682 210 452 770 912 000 300 914 911 1 235 794 523 775 537 188 896 655 745
Q1 2004 932 882 036 1 045 764 755 1 050 618 319 886 261 078 1 146 872 205 1 024 477 312 1 319 049 250 1 211 958 358 965 396 496 829 947 925 716 945 614 867 496 000 316 153 126 1 286 341 597 813 426 308 960 906 025
Q2 2004 966 393 248 1 013 656 644 1 045 101 351 898 114 303 1 154 925 419 991 086 426 1 374 066 500 1 264 409 901 984 247 911 923 450 950 706 292 926 964 080 000 311 378 188 1 296 247 000 827 597 366 981 403 209
Q3 2004 1 035 178 513 1 030 872 829 1 089 448 408 943 122 198 1 205 752 666 1 005 993 290 1 429 083 750 1 347 766 320 965 673 988 1 016 953 975 729 587 562 1 060 664 000 321 572 180 1 257 440 638 862 111 661 1 020 081 465
Q4 2004 1 140 735 941 1 143 147 646 1 236 955 367 1 020 736 204 1 297 925 199 1 113 469 087 1 484 101 000 1 534 312 782 1 039 551 701 1 110 457 000 821 305 746 1 157 248 000 361 916 886 1 338 787 553 960 913 183 1 117 437 553
Q1 2005 1 220 954 547 1 187 165 971 1 348 426 611 1 203 013 448 1 383 835 669 1 187 789 756 1 486 585 000 1 594 941 368 1 051 144 638 1 155 793 500 899 702 513 1 167 671 500 534 692 645 1 355 273 327 1 008 678 322 1 185 711 254
Q2 2005 1 307 024 419 1 197 124 493 1 418 764 770 1 389 302 880 1 476 463 063 1 226 827 583 1 489 069 000 1 614 185 657 1 035 164 456 1 201 130 000 950 494 282 1 178 095 000 686 040 498 1 336 174 052 1 029 910 468 1 235 718 041
Q3 2005 1 347 557 244 1 196 033 776 1 471 740 335 1 523 141 725 1 517 846 508 1 252 439 955 1 491 553 000 1 615 699 627 1 000 548 543 1 246 466 500 989 386 568 1 188 518 500 820 438 128 1 292 920 501 1 039 199 851 1 266 232 717
Q4 2005 1 390 629 426 1 205 904 952 1 534 405 275 1 653 832 567 1 562 382 243 1 287 659 764 1 494 037 000 1 623 566 937 971 513 939 1 291 803 000 1 034 563 227 1 198 942 000 952 902 036 1 256 763 726 1 051 962 625 1 300 724 581
Q1 2006 1 435 377 866 1 258 939 060 1 605 101 249 1 689 044 408 1 599 343 626 1 363 254 056 1 591 607 250 1 705 351 429 1 136 826 067 1 333 786 500 1 077 941 609 1 237 086 500 973 078 055 1 268 120 675 1 045 273 009 1 354 675 424
Q2 2006 1 567 691 791 1 369 639 995 1 749 515 337 1 826 204 522 1 733 065 688 1 502 443 848 1 689 177 500 1 867 130 497 1 359 291 780 1 375 770 000 1 170 567 444 1 275 231 000 1 036 508 521 1 336 738 815 1 084 014 830 1 462 866 105
Q3 2006 1 622 692 534 1 409 076 002 1 803 049 572 1 872 158 381 1 780 472 931 1 564 347 656 1 786 747 750 1 895 913 126 1 474 425 153 1 417 753 500 1 202 187 077 1 313 375 500 1 044 988 851 1 299 788 411 1 043 830 354 1 502 053 787
Copyright UCT
67
Q4 2006 1 729 308 208 1 500 225 267 1 922 847 066 1 976 906 053 1 883 954 694 1 684 200 773 1 884 318 000 2 014 758 650 1 628 625 584 1 459 737 000 1 277 867 016 1 351 520 000 1 091 204 411 1 303 913 608 1 053 038 038 1 584 161 625
Q1 2007 2 246 227 255 1 803 418 230 2 013 103 440 2 098 133 871 2 007 264 233 1 739 518 320 1 960 146 250 1 964 007 781 1 620 040 409 1 523 739 250 1 318 973 055 1 404 176 750 1 160 404 792 1 296 512 750 1 061 574 595 1 681 149 399
Q2 2007 2 787 125 215 2 146 661 084 2 142 179 189 2 236 585 477 2 147 156 516 1 827 841 796 2 035 974 500 1 944 209 541 1 587 541 602 1 587 741 500 1 385 085 646 1 456 833 500 1 252 389 043 1 269 988 210 1 086 499 755 1 792 920 838
Q3 2007 3 389 321 813 2 559 088 060 2 326 308 829 2 413 273 670 2 324 015 033 1 961 711 532 2 111 802 750 1 979 696 055 1 674 752 907 1 651 743 750 1 485 658 382 1 509 490 250 1 377 642 207 1 339 211 575 1 143 579 695 1 949 819 767
Q4 2007 4 015 458 458 3 016 714 096 2 533 592 806 2 594 122 758 2 505 223 281 2 113 094 941 2 187 631 000 2 085 260 702 1 744 727 305 1 715 746 000 1 599 418 521 1 562 147 000 1 518 131 247 1 394 601 539 1 244 860 069 2 122 048 648
Q1 2008 4 124 116 085 3 276 495 958 2 842 796 264 2 920 996 660 2 691 603 811 2 339 697 080 2 125 340 750 2 287 456 689 1 967 580 681 1 741 295 250 1 722 778 137 1 715 373 250 1 621 454 548 1 573 147 785 1 355 719 085 2 287 056 802
Q2 2008 4 302 660 755 3 371 623 054 3 015 030 502 3 284 236 715 2 917 528 475 2 451 610 234 2 063 050 500 2 162 468 655 1 904 549 809 1 766 844 500 1 758 632 299 1 868 599 500 1 641 520 594 1 523 147 992 1 271 758 444 2 353 550 802
Q3 2008 4 576 286 544 3 447 356 900 3 170 662 497 3 717 371 073 3 206 686 424 2 549 784 788 2 000 760 250 2 070 185 655 1 845 051 122 1 792 393 750 1 784 254 144 2 021 825 750 1 651 921 969 1 475 942 373 1 207 423 590 2 434 527 122
Q4 2008 4 280 293 875 3 229 279 421 3 049 087 951 3 664 932 700 3 086 138 413 2 427 224 920 1 938 470 000 1 932 589 799 2 191 301 160 1 817 943 000 1 658 909 311 2 175 052 000 1 523 634 341 1 753 366 740 1 117 161 166 2 389 692 320
Q1 2009 3 410 397 893 2 840 310 568 2 906 037 771 2 893 218 455 2 551 235 740 2 286 023 624 1 918 014 000 1 731 552 576 2 186 993 525 1 919 282 000 1 547 561 862 2 139 286 250 1 415 356 208 1 732 892 290 1 060 431 204 2 169 239 598
Q2 2009 3 419 139 032 2 643 913 839 2 953 452 060 2 869 032 494 2 666 290 281 2 295 388 743 1 897 558 000 1 574 147 981 2 065 506 460 2 020 621 000 1 538 548 638 2 103 520 500 1 400 835 954 1 620 766 500 1 029 037 331 2 139 850 588
Q3 2009 3 179 759 804 2 476 905 095 3 048 392 044 2 633 224 454 2 599 607 563 2 340 176 268 1 877 102 000 1 470 300 860 2 216 822 135 2 121 960 000 1 552 435 990 2 067 754 750 1 406 818 688 1 722 704 210 1 035 515 285 2 116 631 943
Q4 2009 2 851 448 647 2 261 926 953 3 101 162 896 2 323 469 363 2 461 251 228 2 351 014 387 1 856 646 000 1 341 790 692 2 310 735 960 2 223 299 000 1 542 913 535 2 031 989 000 1 391 216 822 1 778 410 530 1 030 059 404 2 057 155 628
Table 14 - Conventional Banks - Total Equity
MO
NT
H
RO
YA
L B
AN
K
OF
SC
TL
.GP
.
DEU
TSC
HE
BA
NK
BN
P P
AR
IBA
S
BA
RC
LAY
S
HSB
C H
DG
.
CR
EDIT
AG
RIC
OLE
CIT
IGR
OU
P
UB
S 'R
'
MIT
SUB
ISH
I UFJ
FI
NL.
GP
.
BA
NK
OF
AM
ERIC
A
SOC
IETE
G
ENER
ALE
JP M
OR
GA
N
CH
ASE
& C
O.
UN
ICR
EDIT
MIZ
UH
O
FIN
L.G
P.
CR
EDIT
SU
ISSE
G
RO
UP
N
AV
ERA
GE
Q1 2003 87 250 199 132 275 625 64 444 582 76 624 437 118 008 117 69 588 952 198 610 750 73 705 919 73 100 348 109 739 500 33 550 703 83 903 743 35 374 641 124 308 110 76 748 228 90 482 257
Q2 2003 92 144 824 138 733 674 69 141 665 85 114 910 143 935 031 80 141 998 211 653 500 75 707 083 72 701 909 110 203 000 36 567 145 87 364 495 37 280 117 125 711 005 81 516 051 96 527 760
Q3 2003 94 486 453 132 898 991 67 799 040 91 293 385 166 086 926 83 994 017 224 696 250 73 357 262 74 702 090 110 666 500 36 420 564 90 825 248 35 892 299 131 380 439 81 626 351 99 741 721
Q4 2003 104 453 800 139 428 300 72 862 722 105 080 064 202 749 435 96 115 952 237 739 000 77 429 844 75 727 069 111 130 000 39 750 082 94 286 000 37 855 011 135 502 348 88 987 859 107 939 833
Q1 2004 117 223 582 144 889 896 75 757 616 115 534 222 222 274 924 98 324 340 248 446 450 85 539 852 80 226 891 130 400 500 41 386 163 119 599 000 43 320 726 138 060 621 95 523 024 117 100 520
Q2 2004 119 569 503 141 211 061 73 872 504 115 635 983 221 861 867 94 360 806 259 153 900 91 151 608 82 234 241 149 671 000 40 409 815 144 912 000 45 974 458 136 166 938 99 270 854 121 030 436
Q3 2004 126 314 595 144 375 015 75 565 682 120 034 079 229 703 612 95 023 835 269 861 350 98 980 862 81 097 972 168 941 500 41 388 897 170 225 000 50 717 750 129 269 711 105 447 187 127 129 803
Q4 2004 137 463 081 160 929 766 84 271 421 128 514 569 245 328 490 104 353 800 280 568 800 114 544 570 87 732 561 188 212 000 46 214 242 195 538 000 60 540 055 134 678 661 119 665 379 139 237 026
Q1 2005 214 188 609 163 572 295 93 045 345 126 955 862 241 312 988 118 418 036 283 141 800 129 083 995 89 927 412 188 957 250 56 250 665 199 347 000 106 079 874 134 174 405 125 971 445 151 361 799
Copyright UCT
68
Q2 2005 290 876 682 161 658 151 98 937 899 126 173 686 238 791 366 128 699 843 285 714 800 139 905 407 89 736 611 189 702 500 64 356 808 203 156 000 146 920 280 130 194 614 128 950 825 161 585 032
Q3 2005 354 974 524 158 489 530 103 547 672 121 383 669 228 729 112 137 122 217 288 287 800 148 545 860 87 852 460 190 447 750 71 316 990 206 965 000 183 516 204 123 999 363 130 412 310 169 039 364
Q4 2005 416 088 924 156 985 028 108 777 431 117 399 504 220 256 209 146 203 468 290 860 800 157 143 741 86 368 097 191 193 000 78 439 406 210 774 000 219 222 567 118 644 690 132 287 880 176 709 650
Q1 2006 396 524 915 164 074 275 104 788 014 119 649 766 226 711 224 152 984 500 310 585 100 167 005 876 107 316 466 209 414 250 80 264 616 216 367 500 230 412 250 116 639 784 137 086 124 182 654 977
Q2 2006 399 152 162 178 690 329 105 066 303 129 106 631 246 958 431 166 794 427 330 309 400 184 819 327 133 860 616 227 635 500 85 667 877 221 961 000 252 250 110 119 787 250 148 202 262 195 350 775
Q3 2006 380 000 742 184 017 476 99 466 545 132 099 343 254 986 306 171 942 191 350 033 700 189 523 839 149 835 396 245 856 750 86 537 531 227 554 500 261 035 514 113 474 213 148 708 395 199 671 496
Q4 2006 371 552 575 196 103 336 97 268 538 139 229 750 271 098 275 183 410 209 369 758 000 203 237 750 169 575 403 264 078 000 90 537 077 233 148 000 279 444 848 110 895 130 156 272 674 209 040 638
Q1 2007 406 469 627 215 851 555 118 451 310 146 165 013 272 073 671 201 417 745 387 328 750 197 223 693 165 104 291 276 527 500 91 330 367 267 852 500 315 830 597 111 774 249 155 047 311 221 896 545
Q2 2007 444 887 002 240 000 995 142 294 713 154 278 552 275 071 569 223 522 230 404 899 500 194 326 587 158 293 158 288 977 000 93 806 499 302 557 000 358 833 819 110 963 721 156 239 058 236 596 760
Q3 2007 491 313 221 270 953 249 170 795 578 164 976 391 282 252 194 251 937 095 422 470 250 196 923 137 163 304 404 301 426 500 98 485 346 337 261 500 412 460 044 118 567 113 161 970 944 256 339 798
Q4 2007 539 120 913 305 495 927 202 404 728 175 888 095 289 230 241 283 656 081 440 041 000 206 395 557 166 296 049 313 876 000 103 851 508 371 966 000 472 163 650 125 088 829 173 723 948 277 946 568
Q1 2008 522 954 235 314 494 841 207 828 701 188 411 211 281 863 950 304 266 978 433 218 450 225 248 595 198 186 101 336 022 500 118 813 997 412 459 750 513 005 507 137 604 418 191 555 115 292 395 623
Q2 2008 517 223 100 306 569 219 202 031 628 203 729 908 280 051 449 309 340 506 426 395 900 211 776 744 202 003 974 358 169 000 128 195 235 452 953 500 528 078 910 129 891 167 182 078 092 295 899 222
Q3 2008 523 242 965 296 739 544 194 974 896 223 469 568 284 586 302 312 603 719 419 573 350 201 553 938 205 408 344 380 315 500 136 888 037 493 447 250 540 116 332 122 675 033 175 315 574 300 727 357
Q4 2008 466 873 550 262 946 104 172 221 131 214 701 988 255 051 583 289 516 842 412 750 800 186 978 457 255 338 340 402 462 000 133 452 743 533 941 000 506 106 780 141 996 462 164 665 539 293 266 888
Q1 2009 402 394 464 252 652 509 200 697 451 193 112 430 220 721 674 267 188 248 427 520 550 185 010 475 240 922 526 444 926 700 188 822 149 507 142 725 463 560 290 136 105 901 163 307 657 286 272 383
Q2 2009 439 171 678 258 862 812 241 340 049 219 524 724 241 867 247 262 607 703 442 290 300 187 297 355 214 576 383 487 391 400 254 902 097 480 344 450 451 903 949 123 317 326 165 697 603 298 073 005
Q3 2009 447 949 691 269 351 802 287 891 587 232 812 919 247 689 413 261 768 374 457 060 050 196 797 475 216 570 517 529 856 100 328 498 458 453 546 175 446 477 721 126 815 945 174 483 610 311 837 989
Q4 2009 444 539 515 276 232 684 332 570 570 239 836 380 246 779 989 256 803 164 471 829 800 204 594 188 211 629 717 572 320 800 401 107 753 426 747 900 433 790 057 126 495 603 181 784 139 321 804 150
Copyright UCT
69
Appendix 5 - Foreign currency translation of Islamic banking financial data
Table 15 - Islamic Banks - Net Profit After Tax
MO
NT
H
AL
RA
JH
I
BA
NK
KU
WA
IT
FIN
AN
CE
HO
USE
DU
BA
I IS
LAM
IC
BA
NK
AB
U D
HA
BI
ISLA
MIC
B
AN
K
QA
TAR
INTL
.ISL
AM
IC B
AN
K
AL
BA
RA
KA
BA
NK
ING
G
RO
UP
ALB
AR
AK
A
TUR
K
ASY
A
KA
TIL
IM
BA
NK
ASI
BA
HR
AIN
IS
LAM
IC
BA
NK
CIM
B
GR
OU
P
HO
LDIN
GS
Ban
k Is
lam
BA
NK
SA
DER
AT
PLC
JOR
DA
N
ISLA
MIC
B
AN
K
KU
WA
IT
INTL
.BA
NK
RH
B C
AP
.
AV
ERA
GE
Q1 2003 543 567 203 410 65 027 27 382 17 702 16 175 - - 6 537 249 649 20 663 9 357 961 2 249 59 574 113 810 712 247
Q2 2003 543 567 203 465 65 027 27 382 17 702 16 175 - - 6 537 249 082 20 616 9 546 554 2 249 59 590 113 551 724 767
Q3 2003 543 567 207 749 65 027 27 382 17 702 16 175 - - 6 550 249 082 20 616 9 466 939 2 248 60 845 113 551 719 829
Q4 2003 543 567 206 151 65 027 27 382 17 702 16 175 - - 6 538 249 271 20 632 10 132 098 2 248 60 376 113 638 764 054
Q1 2004 603 427 220 191 80 155 28 904 19 043 17 227 24 141 28 943 7 374 248 704 20 368 11 409 158 2 266 65 234 111 146 859 085
Q2 2004 663 288 235 358 95 283 30 425 20 384 18 279 21 456 25 723 8 200 249 460 20 212 11 672 947 2 285 70 430 109 249 882 865
Q3 2004 723 148 249 534 110 411 31 947 21 725 19 331 21 132 25 335 9 025 249 648 20 011 12 365 532 2 304 75 332 107 100 935 434
Q4 2004 783 009 263 604 125 539 33 468 23 066 20 383 23 414 28 070 9 829 250 311 19 847 13 490 823 2 324 80 202 105 151 1 017 269
Q1 2005 962 858 308 982 166 544 48 553 49 311 24 984 25 819 35 960 12 272 254 781 -18 491 15 121 771 4 062 68 693 107 223 1 144 888
Q2 2005 1 142 708 353 507 207 548 63 637 75 557 29 586 28 986 44 905 14 716 259 725 -56 791 16 814 363 5 797 56 896 109 495 1 276 709
Q3 2005 1 322 558 397 839 248 552 78 722 101 802 34 187 31 643 53 099 17 159 266 882 -95 886 17 896 151 7 534 45 057 112 701 1 367 867
Q4 2005 1 502 408 444 299 289 557 93 806 128 047 38 788 34 595 61 787 19 644 270 843 -134 000 18 974 505 9 298 33 378 114 558 1 458 768
Q1 2006 1 613 660 498 822 324 579 109 290 123 636 40 751 38 847 76 376 23 403 315 093 -191 077 19 616 538 9 695 33 155 128 530 1 517 420
Q2 2006 1 724 911 560 026 359 602 124 774 119 226 42 715 36 204 76 404 27 168 352 924 -245 109 21 457 190 10 132 33 340 139 770 1 654 619
Q3 2006 1 836 163 615 016 394 624 140 258 114 816 44 678 42 378 94 445 30 961 389 457 -298 238 22 241 646 10 547 33 121 150 496 1 722 691
Q4 2006 1 947 414 671 841 429 647 155 742 110 405 46 641 49 205 114 517 34 683 445 824 -367 640 23 734 889 10 970 32 999 168 741 1 839 059
Q1 2007 1 890 592 786 082 451 281 169 159 115 804 53 898 52 923 122 361 42 649 551 396 -264 650 24 092 979 12 302 40 348 188 650 1 887 052
Q2 2007 1 833 769 905 097 472 916 182 576 121 202 61 154 59 043 135 698 50 507 647 689 -154 008 24 634 055 13 634 47 947 205 048 1 947 755
Q3 2007 1 776 946 1 050 867 494 551 195 994 126 600 68 411 67 458 154 200 58 722 755 294 -44 027 25 559 817 14 958 57 008 224 812 2 037 441
Q4 2007 1 720 124 1 188 001 516 186 209 411 131 999 75 667 73 082 166 230 67 830 876 570 70 180 26 481 316 16 298 65 653 248 116 2 127 111
Copyright UCT
70
Q1 2008 1 725 121 1 059 369 504 565 214 993 133 454 75 662 72 992 149 510 65 569 837 255 84 111 22 954 632 18 453 67 915 273 366 1 882 464
Q2 2008 1 730 118 936 949 492 944 220 576 134 909 75 656 82 147 153 982 63 854 755 623 93 962 26 194 719 20 595 70 830 285 163 2 087 468
Q3 2008 1 735 115 792 667 481 322 226 159 136 363 75 651 95 097 165 159 61 197 652 480 99 641 29 305 366 22 754 72 222 285 655 2 280 457
Q4 2008 1 740 112 635 656 469 701 231 741 137 818 75 645 77 937 126 641 59 652 547 867 102 412 29 718 182 24 908 71 977 279 786 2 286 669
Q1 2009 1 756 289 506 822 434 802 179 118 138 518 72 510 70 450 128 203 31 620 611 913 87 472 27 068 724 23 633 43 522 290 228 2 096 255
Q2 2009 1 772 466 423 673 399 903 126 494 139 218 69 375 72 117 147 091 3 871 693 786 74 467 26 227 286 22 338 19 947 308 618 2 033 377
Q3 2009 1 788 643 339 918 365 003 73 870 139 918 66 240 72 070 165 007 -23 866 771 471 60 101 25 738 343 21 059 -4 147 324 391 1 993 201
Q4 2009 1 804 820 240 243 330 104 21 246 140 618 63 105 67 708 174 432 -51 615 866 740 46 092 24 820 907 19 768 -27 395 346 719 1 924 233
Table 16 - Islamic Banks - Total Assets
MO
NT
H
AL
RA
JH
I
BA
NK
KU
WA
IT
FIN
AN
CE
HO
USE
DU
BA
I
ISLA
MIC
B
AN
K
AB
U D
HA
BI
ISLA
MIC
B
AN
K
QA
TAR
IN
TL.I
SLA
MIC
BA
NK
AL
BA
RA
KA
B
AN
KIN
G
GR
OU
P
ALB
AR
AK
A
TUR
K
ASY
A
KA
TIL
IM
BA
NK
ASI
BA
HR
AIN
IS
LAM
IC
BA
NK
CIM
B
GR
OU
P
HO
LDIN
GS
Ban
k Is
lam
BA
NK
SA
DER
AT
PLC
JOR
DA
N
ISLA
MIC
B
AN
K
KU
WA
IT
INTL
.BA
NK
RH
B C
AP
.
AV
ERA
GE
Q1 2003 17 249 708 10 180 420 6 202 531 2 510 800 1 074 346 1 551 912 - - 614 163 25 779 064 3 624 072 1 029 180 973 692 208 2 257 327 18 311 034 74 615 237
Q2 2003 17 249 708 10 183 157 6 202 531 2 510 800 1 074 346 1 551 912 - - 614 163 25 720 520 3 615 842 1 049 922 326 692 110 2 257 934 18 269 449 75 990 986
Q3 2003 17 249 708 10 397 555 6 202 531 2 510 800 1 074 346 1 551 912 - - 615 366 25 720 520 3 615 842 1 041 166 246 691 622 2 305 473 18 269 449 75 424 758
Q4 2003 17 249 708 10 317 574 6 202 531 2 510 800 1 074 346 1 551 912 - - 614 255 25 740 034 3 618 585 1 114 319 881 691 622 2 287 738 18 283 311 80 297 487
Q1 2004 18 128 248 10 671 855 6 735 903 2 746 779 1 146 919 1 640 530 1 119 076 1 474 336 630 730 26 577 314 3 556 378 1 201 381 200 718 766 2 340 766 19 050 453 86 527 950
Q2 2004 19 006 788 11 079 145 7 269 275 2 982 758 1 219 493 1 729 148 994 573 1 310 308 646 354 27 554 715 3 513 186 1 179 993 468 745 910 2 405 299 19 917 781 85 357 880
Q3 2004 19 885 327 11 438 227 7 802 646 3 218 737 1 292 067 1 817 765 979 592 1 290 571 661 812 28 470 757 3 461 914 1 202 880 614 773 054 2 459 242 20 741 001 87 144 888
Q4 2004 20 763 867 11 792 351 8 336 018 3 454 716 1 364 640 1 906 383 1 085 332 1 429 880 675 867 29 441 920 3 417 160 1 265 603 202 800 762 2 512 115 21 604 553 91 612 585
Q1 2005 21 909 557 12 886 598 9 179 121 4 101 580 1 459 056 2 020 315 1 161 731 1 537 916 719 559 29 485 928 3 600 869 1 285 736 217 834 338 2 546 976 22 072 136 93 283 460
Q2 2005 23 055 247 13 941 608 10 022 223 4 748 444 1 553 472 2 134 248 1 272 470 1 691 402 763 276 29 585 759 3 791 056 1 313 123 560 867 630 2 573 247 22 580 682 95 446 955
Q3 2005 24 200 937 14 988 654 10 865 326 5 395 307 1 647 887 2 248 180 1 360 531 1 814 803 806 963 29 933 723 4 014 522 1 297 283 581 901 628 2 597 954 23 282 224 94 756 148
Q4 2005 25 346 627 16 112 876 11 708 429 6 042 171 1 742 303 2 362 112 1 461 259 1 955 103 852 474 29 921 223 4 190 451 1 287 639 035 938 268 2 635 292 23 705 364 94 440 866
Q1 2006 26 024 760 17 493 913 13 167 662 7 002 099 1 884 085 2 489 234 1 557 959 2 261 231 929 241 33 822 544 4 215 530 1 318 194 811 960 785 2 664 307 25 232 718 97 193 392
Q2 2006 26 702 893 19 104 204 14 626 895 7 962 027 2 025 867 2 616 356 1 390 000 2 156 538 1 006 244 37 011 101 4 138 865 1 428 507 445 987 334 2 726 499 26 189 615 105 143 459
Q3 2006 27 381 027 20 497 826 16 086 129 8 921 956 2 167 650 2 743 478 1 567 584 2 571 431 1 084 236 40 063 488 4 046 972 1 467 679 763 1 011 814 2 756 135 27 050 156 108 375 310
Copyright UCT
71
Q4 2006 28 059 160 21 952 420 17 545 362 9 881 884 2 309 432 2 870 600 1 762 527 3 031 382 1 159 760 45 125 886 4 140 891 1 553 079 481 1 036 990 2 793 887 29 216 149 114 931 054
Q1 2007 29 371 178 24 087 412 18 857 623 10 409 584 2 416 220 3 101 612 2 012 108 3 447 699 1 307 951 47 741 696 4 551 547 1 470 122 747 1 061 012 2 916 382 29 958 022 110 090 853
Q2 2007 30 683 195 26 363 884 20 169 885 10 937 285 2 523 007 3 332 624 2 361 500 4 034 151 1 452 998 49 418 378 4 876 027 1 396 831 975 1 085 034 3 055 526 30 091 870 105 814 489
Q3 2007 31 995 212 29 378 729 21 482 146 11 464 985 2 629 795 3 563 635 2 818 630 4 803 065 1 608 097 51 871 903 5 279 574 1 341 501 421 1 108 430 3 275 955 30 685 265 102 897 790
Q4 2007 33 307 230 32 103 595 22 794 407 11 992 686 2 736 582 3 794 647 3 172 217 5 394 291 1 786 135 55 051 103 5 763 626 1 280 635 559 1 133 078 3 458 748 31 670 880 99 652 986
Q1 2008 35 977 117 33 950 265 22 882 571 12 480 638 2 935 356 3 854 373 2 957 916 5 019 853 1 919 422 58 581 350 6 286 588 986 842 627 1 177 432 3 608 852 32 584 640 80 737 267
Q2 2008 38 647 004 36 139 865 22 970 734 12 968 591 3 134 129 3 914 099 3 146 980 5 331 427 2 067 777 59 210 820 6 499 634 1 018 508 185 1 221 098 3 794 296 31 874 870 83 295 301
Q3 2008 41 316 891 37 560 699 23 058 897 13 456 544 3 332 903 3 973 824 3 476 231 5 880 218 2 183 255 57 628 911 6 459 163 1 044 340 247 1 265 785 3 898 548 30 053 123 85 192 349
Q4 2008 43 986 778 38 106 758 23 147 060 13 944 497 3 531 677 4 033 550 2 737 940 4 625 080 2 336 463 54 974 431 6 281 341 980 930 805 1 310 127 3 913 426 27 796 865 80 777 120
Q1 2009 44 373 486 36 264 878 23 098 079 14 820 891 3 786 635 4 263 540 2 846 177 4 895 782 2 350 364 57 179 753 6 540 072 931 380 633 1 370 013 3 708 069 28 477 828 77 690 413
Q2 2009 44 760 194 37 286 253 23 049 098 15 697 285 4 041 594 4 493 529 3 342 287 5 837 391 2 370 537 60 954 600 6 978 486 942 969 374 1 428 741 3 796 416 29 929 843 79 129 042
Q3 2009 45 146 903 38 462 253 23 000 116 16 573 679 4 296 553 4 723 519 3 827 249 6 771 787 2 401 250 64 218 733 7 358 692 969 536 447 1 488 467 3 900 115 31 114 311 81 521 338
Q4 2009 45 533 611 37 560 512 22 951 135 17 450 073 4 551 511 4 953 508 4 120 603 7 373 027 2 426 699 68 787 574 7 888 708 982 488 004 1 547 354 3 793 533 32 911 207 82 955 804
Table 17 - Islamic Banks - Total Equity
MO
NT
H
AL
RA
JH
I
BA
NK
KU
WA
IT
FIN
AN
CE
HO
USE
DU
BA
I
ISLA
MIC
B
AN
K
AB
U D
HA
BI
ISLA
MIC
B
AN
K
QA
TAR
IN
TL.I
SLA
MIC
BA
NK
AL
BA
RA
KA
B
AN
KIN
G
GR
OU
P
ALB
AR
AK
A
TUR
K
ASY
A
KA
TIL
IM
BA
NK
ASI
BA
HR
AIN
IS
LAM
IC
BA
NK
CIM
B
GR
OU
P
HO
LDIN
GS
Ban
k Is
lam
BA
NK
SA
DER
AT
PLC
JOR
DA
N
ISLA
MIC
B
AN
K
KU
WA
IT
INTL
.BA
NK
RH
B C
AP
.
AV
ERA
GE
Q1 2003 1 933 332
1 087 967 463 577 381 334 86 032 184 926 - - 106 099 3 339 026 294 088 189 736 993 40 435 665 858 2 166 377 13 365 736
Q2 2003 1 933 332
1 088 259 463 577 381 334 86 032 184 926 - - 106 099 3 331 443 293 420 193 560 812 40 429 666 037 2 161 457 13 619 810
Q3 2003 1 933 332
1 111 172 463 577 381 334 86 032 184 926 - - 106 307 3 331 443 293 420 191 946 565 40 401 680 060 2 161 457 13 514 668
Q4 2003 1 933 332
1 102 624 463 577 381 334 86 032 184 926 - - 106 115 3 333 970 293 643 205 432 970 40 401 674 828 2 163 097 14 413 123
Q1 2004 2 019 135
1 148 707 550 996 388 497 94 613 192 033 112 167 123 499 114 766 3 484 473 295 931 219 590 666 40 623 651 758 2 184 750 15 399 508
Q2 2004 2 104 937
1 200 535 638 415 395 660 103 195 199 141 99 688 109 759 123 273 3 653 286 299 791 213 860 982 40 845 631 706 2 217 993 15 045 280
Q3 2004 2 190 740
1 247 179 725 834 402 823 111 777 206 248 98 186 108 106 131 750 3 814 022 302 972 216 191 460 41 068 608 680 2 246 228 15 228 471
Q4 2004 2 276 542
1 293 284 813 253 409 987 120 359 213 355 108 785 119 775 139 935 3 982 186 306 733 225 591 030 41 319 585 381 2 278 761 15 885 379
Q1 2005 2 605 472
1 619 351 871 293 444 669 150 926 232 319 113 926 146 099 152 635 4 020 045 277 659 229 613 629 43 280 596 554 2 313 334 16 213 413
Q2 2005 2 934 401
1 941 356 929 334 479 352 181 494 251 282 122 437 176 719 165 340 4 065 454 249 167 234 924 491 45 226 605 729 2 352 228 16 628 267
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72
Q3 2005 3 263 330
2 262 349 987 375 514 034 212 062 270 246 128 746 204 334 178 039 4 145 225 222 520 232 484 215 47 208 614 538 2 411 109 16 529 689
Q4 2005 3 592 260
2 595 767 1 045 416 548 717 242 629 289 209 136 254 233 854 191 146 4 175 222 193 060 231 126 975 49 329 626 349 2 441 095 16 499 152
Q1 2006 4 164 676
3 052 409 1 392 589 800 996 280 123 331 055 147 909 313 908 193 114 4 858 278 129 729 230 055 910 57 317 627 428 2 564 221 16 597 977
Q2 2006 4 737 092
3 551 121 1 739 762 1 053 275 317 616 372 902 134 040 330 885 195 132 5 442 386 61 473 242 503 359 65 535 636 265 2 628 476 17 584 621
Q3 2006 5 309 508
4 011 501 2 086 935 1 305 554 355 109 414 748 153 246 424 083 197 329 6 006 470 -7 009 242 450 749 73 621 637 449 2 683 062 17 740 157
Q4 2006 5 881 924
4 483 911 2 434 108 1 557 834 392 602 456 594 174 396 528 036 199 081 6 876 485 -78 768 249 752 745 81 753 640 508 2 865 808 18 416 468
Q1 2007 6 110 396
5 282 943 2 739 138 1 737 481 456 453 489 993 229 568 604 247 273 729 7 078 239 13 073 254 107 640 85 053 663 967 3 109 273 18 865 413
Q2 2007 6 338 867
6 114 176 3 044 169 1 917 128 520 304 523 393 298 230 710 531 347 649 7 136 885 106 553 260 400 760 88 352 691 202 3 293 097 19 435 420
Q3 2007 6 567 338
7 127 082 3 349 200 2 096 775 584 155 556 792 384 227 849 408 424 084 7 304 930 203 074 270 781 556 91 601 736 678 3 529 784 20 305 779
Q4 2007 6 795 809
8 082 535 3 654 231 2 276 423 648 006 590 191 459 051 957 220 507 341 7 567 504 306 191 281 146 491 94 952 773 504 3 818 863 21 178 554
Q1 2008 6 899 202
7 688 782 3 535 796 2 291 040 677 149 586 033 417 869 904 159 490 127 8 099 012 338 434 229 922 103 99 851 754 365 3 807 265 17 767 413
Q2 2008 7 002 594
7 353 130 3 417 361 2 305 658 706 293 581 876 435 159 972 698 477 002 8 229 896 354 033 250 339 758 104 691 741 396 3 604 838 19 108 425
Q3 2008 7 105 986
6 852 643 3 298 926 2 320 276 735 436 577 718 471 547 1 084 894 456 843 8 050 167 355 523 269 430 842 109 618 712 032 3 285 796 20 323 217
Q4 2008 7 209 378
6 217 546 3 180 491 2 334 894 764 580 573 560 365 026 861 753 444 979 7 715 445 348 988 264 489 916 114 516 667 936 2 934 258 19 881 551
Q1 2009 7 323 332
5 828 598 3 416 594 2 587 808 834 640 599 011 359 782 864 254 425 559 8 017 976 362 852 251 265 520 117 377 614 783 3 046 632 19 044 314
Q2 2009 7 437 286
5 904 950 3 652 698 2 840 722 904 700 624 462 402 738 983 199 407 427 8 540 421 386 672 254 531 340 120 139 611 375 3 242 502 19 372 709
Q3 2009 7 551 239
6 003 660 3 888 801 3 093 637 974 761 649 912 441 605 1 094 462 391 104 8 991 040 407 247 261 847 778 122 985 609 999 3 410 998 19 965 282
Q4 2009 7 665 193
5 780 253 4 124 904 3 346 551 1 044 821 675 363 457 049 1 148 822 373 873 9 624 009 436 089 265 494 937 125 762 576 191 3 648 552 20 301 491
