Islamic banking is arguably the premier event to have occurred in the banking arena of Arab countries, Islamic countries and even at the international level since the 1980s. This sector has attracted additional attention since the global financial crisis, and this because of its reliance on a different system to that used by conventional banks.Furthermore, with the integration of Islamic banking into the financial mainstream it has become necessary to consider the effectiveness of such banks, banking experience and evaluate the degree to which the performance of these banks compares with their conventional competitors. This study will look at how Islamic banks have faced the latest developments in the world of finance and economics, because there are many advantages in Islamic banks compared to conventional banks, and these features lend themselves to the domestic and global financial system to provide the financing needs of modern society. This study will seek to determine the extent to which Islamic banks keep abreast of the latest financial developments, analysing any advantages that they may offer over-and-above those available via conventional banks. Also, the feasibility of Islamic banks forming the basis for a domestic and global financial system that could serve the financing needs of the contemporary society is assessed.
On the other hand, should be examined the Islamic banking system for more success, so that banks that failed or had some failure to re-examine its policies and methods. Through the study of Islamic banking theory and practices it will be possible to draw a number of conclusions and recommendations that could benefit investors, regulators and the banks themselves. This study conducts financial analysis with the use of financial ratios to draw comparison between the performance of Islamic and conventional banks.
Research Aims:
The aims of the study can be summarised through the following research question:
Do Islamic banks in the Gulf Cooperation Council outperform conventional banks in terms of return on average assets and return on average equity, and how representative are these measures?
Aims and Objectives of the study:
There are several goals for this study:
To understand the nature of Islamic banks.
To measure the performance of Islamic banks.
To compare the performance of Islamic banks with that of conventional banks.
To measure and compare the profitability of Islamic banks with that of conventional banks.
Rationale and Justification for the study:
There are several similar studies to this in the empirical literature but the current study is of significance because there has been relatively little research conducted into Gulf Cooperation Council banks as a whole, and especially evaluating the performance of Islamic banks compared with conventional banks.
This study will evaluate the performance of Islamic banks in terms of profitability as a whole and also perform additional analysis, comparing them with conventional banks, which can be accessible and easily understandable by any person without specialist knowledge. This will help non-academics if they were considering investing in Islamic banks or conventional banks and will also offer an insight for bank supervisors and the financial research community.
Methodology:
The study is based on the analysis of 40 Banks, 15 of which are Islamic and 25 conventional institutions and the sample will be selected by choosing the banks which have the largest total assets, also we will need to investigates the determinants of profitability in Islamic and conventional banks from the Gulf Cooperation Council banks during the period from 2003 - 2008. The data will be collected from the Bankscope database. This study will employ two types of analysis of financial ratios (return on average assets and return on average equity) with the purpose of evaluating and comparing the performance of Islamic banks with that of conventional banks. Moreover, this dissertation will adopt the performance measures methodology which was used by Alnashwan (2008).
Banks that have been selected, according to the highest total assets*:
Conventional banks
Islamic banks
Emirates Bank International
National Bank of Abu Dhabi
Abu Dhabi Commercial Bank
First Gulf Bank
National Bank of Dubai
Mashreqbank
Union National Bank
National Commercial Bank
Samba Financial Group
Riyad Bank
Saudi British Bank
Banque Saudi Fransi
Arab National Bank
Saudi Hollandi Bank
Saudi Investment Bank
National Bank of Kuwait
Gulf Bank
Commercial Bank of Kuwait
Qatar National Bank
Commercial Bank of Qatar
Arab Banking Corporation
Gulf International Bank
Ahli United Bank
Albaraka Banking Group
Bank Muscat
Dubai Islamic Bank plc
Abu Dhabi Islamic Bank
Emirates Islamic Bank
Amlak Finance
Sharjah Islamic Bank
Tamweel
Al Rajhi Bank
Bank Al-Jazira
Bank AlBilad
Kuwait Finance House
Boubyan Bank
Qatar Islamic Bank
Qatar International Islamic Bank
Albaraka Banking Group
Arcapita Bank
* These banks are all based in one of the following six countries. Saudi Arabia, UAE, Kuwait, Qatar, Bahrain, Oman
Research structure:
This study will be divided into five chapters. Chapter One is the Introduction, which is itself divided into six parts. Firstly, the research problems are identified, followed by the aims and objectives of the study, rationale and justification for the study, research methodology and finally the conclusion. Secondly, Chapter Two is the Background, which is divided into three parts, the first of which recounts the empirical literature (Literature Review) and this is followed by the definition and history of each Gulf Cooperation Council member (GCC), Islamic banks and Conventional banks and a comparison is made between Islamic banks and conventional banks. Finally, the financial system in the GCC is described in detail. Chapter Three is Data and Research Methodology, which is divided into five sections starting with data sources and the definition of the financial analysis and its importance, the definition of the performance measures used, the measurement problems, the rationale and hypothesis and finally the conclusion. Chapter Four is Findings and Results, which is divided into three sections starting with comparing the average profits of all Islamic banks and also conventional banks for each year and then using the regression equation for performance measures and finally the conclusion. The fifth chapter is the Discussion and conclusion and will discuss the resolutions and recommendations reached. This is followed by a conclusion of the study.
Contents will be as follows:
Abstract.
List of Abbreviations.
Table of Contents.
CHAPTER ONE: Introduction
1.1 Introduction
1.2 Aims and objectives of the dissertation
1.3 Research problems
1.4 Research methodology
1.5 Rationale and justification for the dissertation
1.6 Conclusion
CHAPTER TWO: Background
2.1 Literature review
2.2 Definitions and history
2.2.1 Gulf Cooperation Council (GCC) background
2.2.2 Islamic banks
2.2.3 Conventional banks
2.2.4 Conclusion of definitions and history
2.3 Comparison
2.3.1 Islamic banks
2.3.2 Conventional banks
2.3.3 Conclusion of comparison
2.4 The financial system in the GCC
CHAPTER THREE: Data and Research Methodology
3.1 Data source
3.2 Finance Analysis
3.3 Measures
3.3.1 Performance measures
3.3.1.1 Return on average assets (ROAA)
3.3.1.2 Return on average equity (ROAE)
3.3.2 Problems with measures
3.4 Rationale and hypothesis
3.5 Conclusions
CHAPTER FOUR: Findings and Results
4.1 A comparison of net profit
4.2 Regressions
4.2.1 Regression: Return on average assets (ROAA)
4.2.2 Regression: Return on average equity (ROAE)
4.3 Conclusions
CHAPTER FIVE: Discussion and Conclusion
5.1 Discussion
5.2 Conclusion
5.2.1 Recommendations
REFERENSES
