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Contribution Details

Type Bachelor's Thesis
Scope Discipline-based scholarship
Title A performance analysis of Islamic banks across severral countries
Organization Unit
Authors
  • Vinoth Yogarasa
Supervisors
  • Thorsten Hens
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 51
Date 2017
Zusammenfassung This paper investigates the performance of Islamic banks in ten distinct Middle-East countries and compares it then to the performance of the ten largest Swiss conventional banks. The performance measures that are used, are from a study called “The International Private Banking Study 2015” by Birchler et al. (2015). These are for example: revenue per employee, operating costs per employee, gross profit per employee etc. Therefore, this bachelor’s thesis aligns with their study in several aspects regarding the methodology of data collection and calculations. Furthermore, this paper explores additionally three traditional measures (ROAA, ROAE & NIM) and compares them to the measures from Birchler. Chapter 2 introduces the reader into the young world of the Islamic banking practices. Topics such as its origin and history, but also their significance in several parts of the world, their future prospects and their most important Islamic financial instruments are discussed. This chapter provides three major insights. First of all, the key feature of Islamic banking is that all financial practices and dealings are conducted without the payment or receipt of interest. This is due to the Shari’ah which explains that interests are prohibited since they are predetermined, which means that the rate of return is already known before the result of a project. The return of a depositor, however, should be commensurate with the involved risk and effort of a bank (Lewis and Algaoud (2001)). Secondly, this chapter shows that it is a misconception that Islamic banking is a completely new form of banking. Interest-free banking services were actually already available during the blossoming of the Islamic empire (600 AD). However, they disappeared with the empires crumbling and with the colonization of many Islamic countries by the Western colonial powers. In the second half of the 20th century, with the independence of Middle-East countries and the revival of the Islamic identity, did the re-emergence of modern Islamic banking come about (Iqbal and Molyneux, 2005). The third insight is that Islamic banking experienced an unprecedented growth ever since its first occurrence and this trend is expected to continue even in the future. The growth rate calculated for the sample of Islamic banks in the Middle-East in this paper accounted for nearly 9% per annum over the last four years! Chapter 3 analyses several parameters considering the performance and displays it in distinct figures. This is done for each ten Middle-East country and Switzerland and also for the Middle-East as a whole. The findings from these descriptive results show that, considering the performance measures from Birchler et al. (2015), Switzerland outperforms the Middle-East for each contemplated measure. However, this holds true not only for the income side, but also for the cost side. On the other hand, traditional measures depict the opposite result. They demonstrated that the Middle-East outperformed Swiss banks in each measure under review. One explanation for this distinct result given in this chapter, is that the degree of performance is dependent on which stakeholder reviews the bank. An investor, for example, is rather interested in the return on equity and only indirectly in what the absolute amount of revenue per employee was. Chapter 4 first summarizes the key insights from previous chapters and then tests two hypothesises. H1 claims that Islamic banks from the Middle-East did not perform better than their Swiss peers for the period under review. H2 claims that the performance of Islamic banks is increasing and is therefore coming closer to the performance of Swiss banks. Hypothesis tests were conducted using confidence intervals. The results showed that differences in performance between both groups described in chapter 3 are mostly statistically insignificant. Only the cost/ income ratio was significantly lower for the Middle-East in 2013 and 2015. The ROAA was significantly higher in Middle-East countries in 2013 and 2014. Furthermore, the NIM was significantly higher in the Middle-East than in Switzerland in 2014. Hence, H1 can be rejected depending on which performance measure and which year is examined. No statement could be made about the second hypothesis because no statistical significance could be detected.
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