New research from The British University in Dubai shows GCC-based Islamic banks performed better during the recent recession than conventional banks. Study suggest that in general Islamic banks are less cost-efficient than conventional banks, possibly due to a lack of economies of scale or because customers are predisposed to Islamic products regardless of the cost.
Islamic banking practice performed better and showed greater resilience during the recent economic crisis than conventional banking practice, according to new research by The British University in Dubai (BUiD), a research-based postgraduate university. [pic]
The study, carried out by Mareyah Mohammed Ahmad, who has just graduated with a distinction in BUiD’s MSc in Finance and Banking course, analysed the profitability, asset-quality, capitalisation and leverage and liquidity ratios between 2006 and 2009 for 12 Islamic banks and 12 conventional banks based in the GCC.
Findings show that during the study period the Islamic banks were more profitable in terms of Return on Average Asset (ROAA), their assets grew much faster and higher, their net income from financing activities was higher, they had higher capital ratios, were less leveraged and had higher liquidity ratios compared with conventional banks.
“My study supports other literature that shows Islamic banking is a better banking practice than conventional banking during an economic crisis. The most recent global downturn, which was linked to asset management, demands and concepts of risk management, proved this point. Assets are the cornerstone of Islamic banking, they have to be real, have value and some marketable features, making them more profitable in terms of generating revenues even during a crisis,” explained Mareyah.
“Another key reason why Islamic banks’ profits remain high is because they enjoy a built-in stabiliser to...