Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiency
Two different types of banking systems, Islamic and conventional, dominate the banking structure in Saudi Arabia. The purpose of this paper is to contribute to the ongoing debate as to which of the two is better. Using data for the period 2014–2018, the study compares Islamic and conventional banks....
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2020-03-01
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| Series: | Banks and Bank Systems |
| Subjects: | |
| Online Access: | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/13261/BBS_2020_01_Haque.pdf |
| _version_ | 1828763887745368064 |
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| author | Mohammad Imdadul Haque Mohammad Rumzi Tausif Anis Ali |
| author_facet | Mohammad Imdadul Haque Mohammad Rumzi Tausif Anis Ali |
| author_sort | Mohammad Imdadul Haque |
| collection | DOAJ |
| description | Two different types of banking systems, Islamic and conventional, dominate the banking structure in Saudi Arabia. The purpose of this paper is to contribute to the ongoing debate as to which of the two is better. Using data for the period 2014–2018, the study compares Islamic and conventional banks. It combines traditional financial ratios, Return on Assets (ROA) and Return on Equity (ROE), with Data Envelopment Analysis (DEA) to perform a comprehensive analysis. In terms of ROA, the performance of conventional banks is better than that of Islamic banks, but in terms of ROE, vice versa. DEA results show that conventional banks are more efficient than Islamic banks. In fact, in terms of ROA and ROE, Al Rajhi Bank, an Islamic bank, is the best performer. But in terms of efficiency scores from DEA, Al Rajhi ranks seventh among all banks, while NCB, a conventional bank, ranks first. Issuing shares and utilizing funds in profitable options, such as loans and advances to increase net income, are the policy recommendations for Islamic banks to further improve. In addition, as the study finds no correlation between the ratio and efficiency scores, it proposes to use a combined measure of ratio analysis and efficiency analysis for a comprehensive assessment of bank performance. |
| first_indexed | 2024-12-11T02:10:03Z |
| format | Article |
| id | doaj.art-28ea21b0f7c3461194e8b4678af3c3c1 |
| institution | Directory Open Access Journal |
| issn | 1816-7403 1991-7074 |
| language | English |
| last_indexed | 2024-12-11T02:10:03Z |
| publishDate | 2020-03-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Banks and Bank Systems |
| spelling | doaj.art-28ea21b0f7c3461194e8b4678af3c3c12022-12-22T01:24:17ZengLLC "CPC "Business Perspectives"Banks and Bank Systems1816-74031991-70742020-03-0115113214210.21511/bbs.15(1).2020.1313261Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiencyMohammad Imdadul Haque0https://orcid.org/0000-0001-6323-032XMohammad Rumzi Tausif1https://orcid.org/0000-0001-7485-9385Anis Ali2https://orcid.org/0000-0001-7799-6043Ph.D., Associate Professor, Department of Management, College of Business Administration, Prince Sattam Bin Abdulaziz UniversityPh.D., Assistant Professor, Department of Management, College of Business Administration, Prince Sattam Bin Abdulaziz UniversityPh.D., Assistant Professor, Department of Management, College of Business Administration, Prince Sattam Bin Abdulaziz UniversityTwo different types of banking systems, Islamic and conventional, dominate the banking structure in Saudi Arabia. The purpose of this paper is to contribute to the ongoing debate as to which of the two is better. Using data for the period 2014–2018, the study compares Islamic and conventional banks. It combines traditional financial ratios, Return on Assets (ROA) and Return on Equity (ROE), with Data Envelopment Analysis (DEA) to perform a comprehensive analysis. In terms of ROA, the performance of conventional banks is better than that of Islamic banks, but in terms of ROE, vice versa. DEA results show that conventional banks are more efficient than Islamic banks. In fact, in terms of ROA and ROE, Al Rajhi Bank, an Islamic bank, is the best performer. But in terms of efficiency scores from DEA, Al Rajhi ranks seventh among all banks, while NCB, a conventional bank, ranks first. Issuing shares and utilizing funds in profitable options, such as loans and advances to increase net income, are the policy recommendations for Islamic banks to further improve. In addition, as the study finds no correlation between the ratio and efficiency scores, it proposes to use a combined measure of ratio analysis and efficiency analysis for a comprehensive assessment of bank performance.https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/13261/BBS_2020_01_Haque.pdfbank performancecorrelationdata envelopment analysisreturn on assetsSaudi Arabia |
| spellingShingle | Mohammad Imdadul Haque Mohammad Rumzi Tausif Anis Ali Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiency Banks and Bank Systems bank performance correlation data envelopment analysis return on assets Saudi Arabia |
| title | Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiency |
| title_full | Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiency |
| title_fullStr | Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiency |
| title_full_unstemmed | Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiency |
| title_short | Continued discussion on conventional versus Islamic banks: combining financial ratios and efficiency |
| title_sort | continued discussion on conventional versus islamic banks combining financial ratios and efficiency |
| topic | bank performance correlation data envelopment analysis return on assets Saudi Arabia |
| url | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/13261/BBS_2020_01_Haque.pdf |
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