How the internal factors of the islamic banking affected their performance - Free Essay Example

Sample details Pages: 25 Words: 7632 Downloads: 8 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? Chapter 1: Introduction Introduction to the Subject Background of the Subject General Objective The purpose of this study is to examine how the internal factors of the Islamic Banking affected their performance before, during and after the financial crisis in the GCC in comparison to the conventional banking in the same area. Research Questions This study aims to answer the following questions: How did the financial crisis affect the profitability of Islamic Banks in comparison to Conventional Banks? What are the internal factors (bank specific characteristics) that influence the profitability of Islamic banking for every year from 2006 2009? Did these factors have the same impact on the profitability of Islamic Banking before, during and after the financial crisis? Did these internal factors influence the profitability of Islamic Banking in the same manner as of the Conventional Banking? Don’t waste time! Our writers will create an original "How the internal factors of the islamic banking affected their performance" essay for you Create order Need for the Study Significance of the Study Assumptions of the Study Limitations of the Study Although we cannot neglect the importance of the external factors on the profitability of Islamic Banking, they were not included in this study. To understand the reason behind this decision, we need to go through the different types of external factors and how they are classified: Macroeconomic Factors Country Regulation Rules Bank Regulation Rules These factors were not included for the following reasons: Since we are examining the performance of 92 banks (27 Islamic Banks and 65 Conventional Banks) in 6 countries, the number of countries used in the study is not significant enough to study the impact of GDP and inflation accurately on Bank profitability especially when examining each year separately Country Regulation Rules as per the IMF Database, although it differs slightly for the selected countries, did not change over the period from 2006 to 2009. This means that for each bank, these factors remained constant. Data about Bank Regulation Rules cou ld not be obtained for GCC banks Delimitation of the Study This study was delaminated to the Islamic and Conventional Banks in the GCC whose data could be obtained in the Bankscope database. Chapter 2: Literature Review Overview of Islamic Banking Islamic Baking has established as an alternative to conventional interest-based banking. The first stirring of the Islamic Banking movement began in 1963 by Dr. Ahmed Alnajar in a small town in Egypt, called Mit Ghamar. Dr. Alnajar completed his education in Germany and found that it had many saving banks operating on interest. He took the idea from a savings bank in Germany and created his own small Islamic bank that was interest free. After Dr. Alnajars small bank proved successful, the establishment of other Islamic banks followed. In 1971, the Nasser Social Bank was founded in Egypt with the objective of lending out money as a charity on the basis of a profit and loss sharing system and helping people in need. And in 1975, the idea of Islamic banking spread to other Islamic regions such Dubai Islamic bank in United Arab Emirates and The Islamic Development (IDB) Bank in Jeddah, Saudi Arabia (Wilson, 1990). Even though Islamic Banking has only been around for thirty years and is still in an evolving stage, Islamic Banking is the fastest growing segment of the credit markets in the Muslim countries. In 2009, Assets held by Islamic Banking banks rose by 28.6 percent to $822bn from $639bn in 2008, according to The Bankers â€Å"Top 500 Islamic Financial Institutions† survey while conventional banks posted annual asset growth of just 6.8 percent. Furthermore, GCC states accounted for $353.2bn or 42.9 percent of the global aggregate, while Iran remained the largest single market for Shariah-compliant assets, accounting for 35.6 percent of the total. Finally, Islamic banking operations are not limited to Islamic countries but are spreading throughout the world. One reason is the growing trend toward transcending national boundaries, and unifying Muslims into a political and economic entity that could have a significant impact on the pattern of world trade (Abdel-Magid, 1981). Islamic Banking Rules and Principles Islamic banking rules are according to the Islamic Shariah derived from the Quran and prophet Mohameds sayings. The three main practices that are clearly prohibited in the Quran and the prophets sayings are, Riba (Interest), Gharar (Uncertainty), and Maysir (Betting). Prohibition of Riba or any predetermined or fixed rate in financial institutions is the most important factor in the Islamic principles pertaining to banking. As stated in the Quran â€Å"Allah forbids riba†. Riba means an increase and under Shariah the term refers to the premium that must be paid by the borrower to the lender along with the principle amount as a condition for the loan (Omar and Abdel, 1996). Gharar occurs when the purchaser does not know what has been bought and the seller does not know what has been sold. In other words, trading should be clear by stating in a contract the existing actual object(s) to be sold, with a price and time to eliminate confusion and uncertainty between the buyers and the sellers. Mai sir is considered in Islam as one form of injustice in the appropriation of others wealth. The act of gambling, sometimes referred to betting on the occurrence of a future event, is prohibited and no reward accrues for the employment of spending of wealth that an individual may gain through means of gambling. Under this prohibition, any contract entered into, should be free from uncertainty, risk and speculation. Contracting parties should have perfect knowledge of the counter values intended to be exchanged as a result of their transactions. Therefore, and according to Ahmed and Hassan (2007), the principles of Islamic banking and finance enshrined from al-Quran and Prophet Mohamed‘s Sayings can be summed up as follows: Any predetermined payment over and above the actual amount of principal is prohibited. The lender must share in the profits or losses arising out of the enterprise for which the money was lent. Making money from money is not acceptable in Islam. Gharar (deception) and Maisir (gambling) are also prohibited. Investments should only support practices or products that are not forbidden or even discouraged by Islam. Islamic Banking Products Islamic Banking products have to be done according to Islamic rules and principles, based on profit and loss sharing as well as avoiding interest. According to BNM statistics 2007, Al Bai Bithaman Ajil financing is the most common in Islamic Banking. There are a lot of Islamic Banking products; however there are some famous Islamic products that will be discussed in this section. 1. Al Bai Bithaman Ajil /BBA This involves the credit sale of goods on a deferred payment basis. In BAA, the Islamic bank will purchase certain assets on a deferred payment basis and then sell the goods back to the customer at an agreed price including some margin or profit. The customer will make payment by installments over an agreed period. A fixed rate BBA is a powerful hedging tool against interest rates (Rosly, 1999). 2. Murabahah Murabahah is a contract of sale. The Islamic Bank acts as a middle man and purchases the goods requested by the customer. The bank will later sell the goods to the customer in a sale and purchase agreement, whereby the lender re-sales to the borrower at a higher price agreed on by both parties. These are more for short term financing 3. Mudharabah According to Kettel (2006), Mudharabah is a basic principle of profit and loss, where instead of lending money at a fixed rate return, the banker forms a partnership with the borrower, thereby sharing in a ventures profit and loss. Mudharabah is an agreement between the lender and entrepreneur, whereby the lender agrees to finance the project on a profit sharing basis according to a predetermined ratio agreed by both parties concerned. If there are any losses the lender will bear all the losses. 4. Musharakah Musharakah means partnership whereby the Islamic institution provides the capital needed by the customer with the understanding that they both share the profit and loss according to a formula agreed before the business transaction is transacted. In Musharakah all partners are ent itled to participate in the management of the investment but it is not compulsory. Musharakah can help in providing financing for large investments in modern economic activities 5. Al Ijarah Ijarah means meaning to give something on a rental basis. In Ijarah, the bank acquires ownership based on the promise and leases back to the client for a given period. The customer pays the rental but the ownership still remains with the bank or lender. As the ownership remains with the lessor (bank), it continues to give the service for which it was rented. Under this contract, the lessor has the right to re-negotiate the quantum of the lease payment at every agreed interval to ensure rental remains in line with the market rates (Hume, 2004). 6. Wadiah Wadiah is a trust contract and the bank provides gift (hibah) and various types of benefits to the customer. This is exactly like a normal conventional savings account. 7. Istisna Istisna allows one party buys the goods and the other party undertakes to manufacture them according to agreed specifications. Normally, Istisna is used to finance construction and manufacturing projects. 8. Salam Salam is defined as the forward purchase of specified goods with full forward payment. This contract is normally used for financing agricultural production. According to Hassan (2004), Salam based future contracts for agricultural commodities, supported by Islamic Banks, can help to overcome the agricultural financial problems Table 2.1 lists the products of conventional banking and their correspondent products in Islamic Banking. Deposit Services Current Deposit Wadiah Wad Dhamana / Qard Hasan Savings Deposit Wadiah Wad Dhamana / Mudaraba General Investment deposit Mudaraba Special Investment deposit Mudaraba Retail / Consumer Banking Housing Property Finance BBA / Ijara wa Iktina /Diminishing Musharaka Hire Purchase Ijara Thumma Al-Bai Share Financing BBA / Mudaraba / Musharaka Working Capital Financing Murabahah/ Bai Al-Einah/ Tawarruq Credit Card Bai Al-Einah/ Tawarruq Charge Card Qard Hasan Corporate Banking/ Trade Finance Project Financing Mudaraba / Musharaka / BBA / Istisna / Ijara Letter of Credit Musharaka/ Wakala/ Murabaha Venture Capital Diminishing Mudaraba/ Musharaka Financing Syndication Musharaka + Murabaha/ Istisna / Ijara Revolving Financing Bai Al-Einah Short-term Cash Advance Bai Al-Einah/ Tawarruq Working Capital Finance Murabaha/ Salam/ Istijrar Letter of Credit Murabaha Letter of Guarantee Kafala + Ujr Leasing Ijara Export/ Import Finance Musharaka/ Salam/ Murabaha Work-in-Progress, Construction Finance Istisna Bill Discounting Bai al-Dayn Underwriting, Advisory Services Ujr Treasury / Money Market Investment Products Sell buy-back agreements Bai al-Einah Islamic Bonds Mudaraba / Mushraka + BBA / Istisna / Ijara Government Investment Issues Qard Hasan/ Salam/ Mudaraba Other Products Services Stock-Broking Services Murabaha/ Wakala/ Joala Funds Transfer (Domestic Foreign) Wakala/ Joala Safe-Keeping Collection (Negotiable Instruments) Wakala/ Joala Factoring Wakala/ Joala/ Bai al-Dayn Administration of Property, Estates and Wills Wakala Hiring of Strong Boxes Amana/ Wakala Demand Draft, Travellers Cheques Ujr/ Joala ATM Service, Standing Instruction, Telebanking Ujr Source: Obaidullah, 2005 Financial Crisis and the Islamic Banking To be able to compete with conventional banks, Islamic banks have to offer financial products that are comparable to the ones offered by the conventional banks. This exposes the Islamic banks to similar credit, liquidity and risks driven by market instability. Despite that, Islamic banks managed to remain stable at the early phases of the crisis. That was driven by three main Factors. First, Islamic banks financing activities are strongly tied to the real economic activities than their conventional counterpart. Even though Musharakah and Mudharabah both provide better risk sharing while keeping strong link to the real sector, they are used minimally for different reasons. Most financing activities are done through Murabah and Ijarah followed by Istinsa. In the GCC and during 2007, Murabaha comprised of 65.4%, Ijarah 12.78% and Istinsa 2.83%. Both Murabaha and Ijrah transactions require the Islamic bank to know the clients purspose and use of finance as well the ownership of the asset by the bank. This help in ensuring that the funds are used for their stated purposes. On the other hand, conventional banks do not require disclosing the use of funds as long as the client is believed to creditworthy or can post suitable collateral. Second, Islamic banks avoid direct exposure to exotic and toxic financial derivative products. Since Shariah prohibits riba and gharar, the asset portfolio of Islamic banks did not include any CDOs, CMBSs, and CDSs which turned out to be highly toxic for conventional banks and amplifying factor for the crisis. These derivative products, initially used for hedging purposes, became device for highly speculative investments among conventional financial institutions. Unavailability of hedging instruments for Islamic financial institutions, which was perceived as weakness before the crisis, became a strengthening factor for them. However, exposure to other investment risks driven from equity markets, sukuk, real-estate and ownersh ip stakes in other businesses remain a source of concern when overdone or undertaken purely for speculative gains. Third, Islamic banks in general have a larger proportion of their assets in liquid form than their conventional counterparts. This is driven by two main reasons: (1) there is no lender of last resort (LOLR) facility available to Islamic banks, and they do not have access to market liquidity in the form of the interbank market, high liquidity was maintained for risk management purpose. (2) Excess liquidity is required due to lack of interest-free short-term investment opportunities as real economic investments require some development period. As the global financial crisis became a global economic crisis, it started to affect Islamic banks in an indirect manner. The financial crisis has triggered a chain reaction whereby the slowdown in the real economies of the developed countries has started to affect economic growth and investment activities in export driven eco nomies of the developing countries through lower trade in goods and services as well as through the declining commodity prices including that of oil. The economic downturn is not only affecting the investment and financing activities of financial institutions including those of Islamic banks, it is also reducing the funding of these banks through lower personal savings and declining corporate profits. It should be noted that most of the Islamic banking industry comprises of commercial banks whose major funding source are retail deposits, investment banking constitutes only a small portion of the industry. Islamic banks in some regions may face risk on their financing and investment side of the balance sheet due to the crisis induced volatility of equity markets where these banks have large positions. Downturn in the real estate markets where these banks have large direct and indirect exposures is also another source of risk. Similarly, the changing wealth position of their high-net- worth (HNW) clients who also hold financial exposure in the hard-hit conventional financial sector of the West and therefore are now postponing any investment plans is also a factor. The relative importance of each of these factors varies by the region. For example, the banks in the GCC and particularly in the UAE are more exposed to real estate market risk, followed by risk of international equity markets. For the banks in Asia, their investments in domestic and international equity markets are a source of concern as equity markets are showing higher volatility. In some of the countries, the existing fiscal imbalance which has widened after the crisis is also a factor in the increased volatility of the markets Previous Literature The study of bank profitability is an important tool to evaluate bank operation by examining the different factors affecting bank profitability and using these factors for management planning and strategic analysis. In the last four decades, many studies have been conducted to study both bank profitability and the determinants of bank profitability either for particular country or for a panel of countries. These studies normally divide these factors into internal factors and external factors. Internal factors represent the bank-specific characteristics such as bank size, liquidity structure; liabilities†¦etc while external factors can be macroeconomic factors such as inflation and GDP growth or Country-specific regulations rules and practices. In the area of banking profitability, many studies have been conducted to investigate the profitability of conventional banks while only few were conducted in the field of Islamic banking. In this chapter, we will review these studies for conventional banking first and then will focus on studies in the Islamic banking field. Then we will cover the conceptual framework of this research. Conventional Banking Different studies have been conducted in the field of conventional banking profitability. Short (1979), Bourke (1989), Molyneux and Thornton (1992), Goddard, Molyneux, and Wilson (2004), Peters et al. (2004) are some of the researchers in the field. Short (1979) is one of the early scholars who studied the relationship between banking profit rates and concentration for sixty banks in Canada, Western Europe and Japan during the 1970s and he included independent variables including government ownership and concentration by using H index to quantify concentration. Results showed that the government ownership impact on profitability varied throughout the countries studied but expressed an overall negative relationship. He also found evidence that indicated higher concentration rates lead to higher profit rates (Short, 1979). Bourke (1989) also compared concentration to bank profitability but included other determinants. Bourke (1989) covered ninety banks in Australia, Europe, and North America between 1972 and 198 and examined different internal and external factors: internal factors such as staff expenses, capital ratio, liquidity ratio, and loans to deposit ratio; external factors such as regulation, size of economies of scale, competition, concentration, growth in market, interest rate, government ownership, and market power. His results show that increase in government ownership leads to lower profitability in banking. He also found that concentration, interest rates, and money supply are positively related to profitability along with capital and reserves of total assets as well as cash and bank deposits of total assets. Bourke adds that well capitalized banks enjoy cheaper access to sources of funds as they are less risky than less capitalized banks (Bourke, 1989). Later, Molyneux and Thornton (1992) studied the determinants of European banks profitability. The paper examined eighteen counties in Europe between 1986 and 1989. This paper replicated B ourkes (1989) work by using internal and external determinants of bank profitability. However, Molyneux and Thornton (1992) results showed that government ownership expresses a positive coefficient with return on capital (profitability) which contradicts with Bourkes findings. Other results were similar to Bourkes, showing that concentration, interest rate, and money supply were positively related to bank profitability (Molyneux and Thornton, 1992). In one of the recent papers on bank profitability on European banks, Goddard, Molyneux, and Wilson (2004) shows similar findings to the paper by Molyneux and Thornton (1992). It investigates the determinants of profitability in six European countries and it covered 665 banks between 1992 and 1998. The study used cross-sectional and dynamic panel models. The variables used in the regression analysis were ROE, the logarithmic of total assets, Off Balance Sheet (OBS) dividends, Capital to Asset Ratio (CAR). The results from both models w ere similar: evidence reveals that there is a positive relationship between size (total assets) and profitability. Meanwhile, OBS appears to have a positive relationship with profitability for UK but neutral or negative for other European countries. Moreover, results also state that CAR has a positive relationship with profitability. Furthermore, the paper touched on ownership type by indicating that there is high competition in banking due to the fact that there is foreign bank involvement in domestic banks, and that profitability is not linked to ownership (Goddard, Molyneux, and Wilson, 2004). Peters et al. (2004) studied the characteristics of banks in post-war Lebanon for the years 1993 to 2000 and compared the results to a group of banks from five other countries in the Middle East including UAE, KSA, Kuwait, Bahrain and Oman for the years 1995 through 1999. They used Return on Equity (ROE) measure profitability and leverage and they employed regression models that relate b ank profitability ratios to various explanatory variables. This study tests the relationships between bank profitability and size, asset portfolio composition, off-balance sheet items, ownership by a foreign bank, and the ratio of employment to assets. The results show a strong association between economic growth and bank profitability, whether measured by ROE or ROA. They found that Lebanese banks are profitable, but not as profitable as a control group of banks from five other countries located in the Middle East. Islamic Banking In the area of Islamic Banking, Bashir (2000) assessed the performance of Islamic banks in eight Middle Eastern countries. He analyzed important bank characteristics that affect the performance of Islamic banks by controlling economic and financial structure measures. The paper studied fourteen Islamic banks from Bahrain, Egypt, Jordan, Kuwait, Qatar, Sudan, Turkey, and United Arab Emirates between 1993 and 1998. To examining profitability, the paper used Non Interest Margin (NIM), Before Tax Profit (BTP), Return on Assets (ROA), and Return on Equity (ROE) as performance indicators. There were also internal and external variables: internal variables were bank size, leverage, loans, short-term funding, overhead, and ownership; external variables included macroeconomic environment, regulation, and financial market. In general, results from the study confirm previous findings and show that Islamic banks profitability is positively related to equity and loans. Consequently, if loans an d equity are high, Islamic banks should be more profitable. If leverage is high and loan to assets is also large, Islamic banks will be more profitable. The results also indicate that favorable macro-economic conditions help profitability (Bashir, 2000). Hassoune (2002) examined Islamic bank profitability in an interest rate cycle. In his paper, compared ROE and ROA Volatility for both Islamic and conventional banks in three GCC region, Kuwait, Saudi Arabia, and Qatar. He states that since Islamic banking is based on profit and loss sharing, managements have to generate sufficient returns for investors given that they are not willing accept no returns (Hassoune, 2002). Bashir and Hassan (2004) studied the determinants of Islamic banking profitability covers 43 Islamic Banks between 1994 and 2001 in 21 countries. Their figures show Islamic banks to have a better capital asset ratio compared to commercial banks which means that Islamic banks are well capitalized. Also, their pap er used internal and external banks characteristics to determine profitability as well as economic measures, financial structure variables, and country variables. They used, Net-non Interest Margin (NIM), which is non interest income to the bank such as, bank fees, service charges and foreign exchange to identify profitability. Other profitability indicators adopted were Before Tax Profit divided by total assets (BTP/TA), Return on Assets (ROA), and Return on Equity (ROE). Results obtained by Bashir and Hassan (2004), were similar to the Bashir (2000) results, which found a positive relationship between capital and profitability but a negative relationship between loans and profitability. Bashir and Hassan also found total assets to have a negative relationship with profitability which amazingly means that smaller banks are more profitable. In addition, during an economic boom, banks profitability seems to improve because there are fewer nonperforming loans. Inflation, on the oth er hand, does not have any effect on Islamic bank profitability. Finally, results also indicate that overhead expenses for Islamic banks have a positive relation with profitability which means if expenses increase, profitability also increases (Bashir and Hassan, 2004). Alkassim (2005) examined the determinants of profitability in the banking sector of the GCC countries and found that asset have a negative impact on profitability of conventional banks but have a positive impact on profitability of Islamic banks. They also observed that positive impact on profitability for conventional but have a negative impact for Islamic banking. Liu and Hung (2006) examined the relationship between service quality and long-term profitability of Taiwans banks and found a positive link between branch number and long-term profitability and also proved that average salaries are detrimental to banks profit. Masood, Aktan and Chaudhary (2009) studied the co-integration and causal relationship bet ween Return on Equity and Return on Assets for 12 banks in KSA for the period between 1999- 2007. For their research, the used time series model of ADF unit-root test, Johansen co-integration test, Granger causality test and graphical comparison model. They found that there are stable long run relationships between the two variables and that it is only a one-direction cause-effect relationship between ROE and ROA. The results show that ROE is a granger cause to ROA but ROA is not a granger cause to ROE that is ROE can affect ROA input but ROA does not affect the ROE in the Saudi Arabian Banking sector. Conceptual Framework Theoretical framework is a basic conceptual structure organized around a theory. It defines the kinds of variables that are going to be used in the analysis. In this research, the theoretical framework consists of seven independent variables that represent four aspects of the Bank Characteristics. Theses aspects are the Bank Size (Total Assets), Capital Structure (Equity and Tangible Equity), Liquidity (Loans and Liquid Assets) and Liabilities (Deposits and Overheads). Bank profitability is the dependent variable and two measures of bank profitability are used in this study, namely return on average equity (ROAE) and return on average assets (ROAA). In this section we develop the hypothesis to be examined in this research paper. Development of Hypotheses This paper attempts to test seven hypotheses. A hypothesis is a claim or assumption about the value of a population parameter. It consists either of a suggested explanation for a phenomenon or of a reasoned proposal suggesting a possible correlation between multiple phenomena. According to Becker (1995), hypothesis testing is the process of judging which of two contradictory statements is correct. Hypothesis 1: Profitability has a positive and significant relationship with the total assets (ASSETS). Total Assets of a company represents its valuables including both tangible assets such as equipments and properties along with its intangible assets such as goodwill and patent. For banks, total assets include loans which are the basis for bank operations either through interest or interest-free practices. Total assets is used as a tool to measure the bank size; banks with higher total assets indicate bigger banks. Molyneux and el (2004) included total assets in their study and found a positive significant relationship between total assets and profitability. Therefore, total assets are expected to have positive relation with profitability which means that bigger banks are expected to be more profitable. Total assets are converted logarithmic to be more consistent with the other ratios Hypothesis 2: Profitability has a positive and significant relationship with equity to asset ratio (EQUITY). Total equity over total assets measures banks capital structure and adequate. It indicated bank ability to withstand losses and handle risk exposure with shareholders. Hassan and Bashir (2004) examined the relationship between EQUITY and bank profitability and found positive relationship. Therefore, EQUITY is included in this study and it is expected to have a positive relation with performance because well capitalized banks are less risky and more profitable (Bourke, 1989) Hypothesis 3: Profitability has a positive and significant relationship with Tangible Equity to total liabilities ratio (TNGEQTY). Tangible Equity represents the subset of shareholders equity that is not common shares and not intangible asset. Tangible Equity became very popular after the financial crisis as a measure of bank viability since it indicates of how much ownership equity owners of common stock would receive in the event of a companys liquidation. Beltratti and Stulz (2009) examined tangible equity to liabilities in their study to examine why some banks perform better during the financial crisis and found positive and insignificant relationship between TNEQTY and bank profitability. Therefore, TNEQTY is included in this study and it is expected to have positive relationship since banks with better capital structure in since of more equity seems to perform better. Hypothesis 4: Profitability has a positive and significant relationship with the loans to assets ratio (LOANS) Total loans over total assets a liquidity ratio used that indicates how much of bank assets are tied to loans. For banks, the higher LOANS ratio means less liquidity. Demirguc-Kunt and Huizinga, (1997) found positive relationship between LOANS and bank profitability. LOANS is included in this study and anticipated to have positive relationship with profitability. Furthermore, conventional banks rely on interest-based loans while Islamic banks rely on profit and loss sharing interest-free lending. Therefore, this ratio is also used to compare the performance of interest-based loans and interest-free lending. Hypothesis 5: Profitability has a positive and significant relationship with the liquid assets to total assets ratio (LIQUID). Liquid assets include currency, deposit accounts, and negotiable instruments that can be converted easily into cash. Liquid assets to total assets ratio is a liquidity ratio that measure how easily the banks assets can be converted into cash. Beltratti and Stulz (2009) found that LIQUID has positive and significant relation with profitability as banks with more liquid assets tend to perform better. Therefore, LIQUID is included in this study and expected to have positive relationship with profitability. Hypothesis 6: Profitability has a reverse and significant relationship with the deposits to assets ratio (DEPOSITS). Deposits to total ratio is another liquidity indicator but is considered a liability since they measure the impact of liabilities on profitability. Bashir and Hassan (2004) examined deposits in their study and found a negative relationship with profitability. Therefore, we expect that DEPOSITS to have negative relationship with profitability. Hypothesis 7: Profitability has a positive and significant relationship with the overhead to assets ratio (OVERHEAD). Overhead costs represent all bank expenses excluding interest expenses as they are considered as operations expenses. Overhead over total assets is a liability ratio that measures the operation efficiency of the bank. Alkassim (2005) included OVERHEAD in his research and found positive relationship to profitability. Therefore, OVERHEAD is included in this study and expected to have positive relationship to profitability. Chapter 3: Methods Data Sample Since the main objective of this research is study how the financial crisis affected the profitability of Islamic Banking in the GCC region in comparison to the conventional banking in the same region, a time-series cross-sectional data is used for the period of 2006 to 2009. Cross-sectional data provide information on variables for a given period of time while time-series data give information about variables over a number of periods of time. The financial data for all GCC banks used in this study were extracted from Bankscope database. Bankscope database has many advantages: it has information for over 30,000 banks, plus the accounting information is presented in a standardized format. Therefore, the accounting information of Islamic Banking is adjusted to be comparable with accounting information of conventional banks. After removing all records with missing data, a total of 92 banks were included in this study for the years from 2006 to 2008 (27 Islamic Banks and 65 Conve ntional Banks). As for 2009, out of these 92 banks, only 38 banks have their financial reports published by the time of data extraction. Therefore, 2009 data sample was limited to those 38 banks (9 Islamic Banks and 29 Conventional Banks). Most of previous researches that studied bank profitability used panel data as it combines cross-sectional and time-series data in the regression model. The advantage of using panel data is that more observations on the explanatory variable are available. Since we are trying to study how the bank profitability was affected by the financial crisis over the years, we use the regression model to examine the data of each year separately. This help to understand how profitability measures and determinants vary over the period from 2006 to 2009. Goodness of fit To ensure the fit distributions of observations in the sample data, chi-square test was applied. Chi-square is a statistical model that is used to determine if the distribution of observations in the sample data closely matches the hypothetical distribution of the population. In our case, the distribution of the population is represented by the total number of Islamic banks and conventional banks in the GCC. For years 2006 2008: Type Frequency Sample Percent population Percent Conventional 65 70.65 68 Islamic 27 29.35 32 Chi-Square: 0.2974 Degree of Freedom: 1 Pr ChiSq: 0.5855 For year 2009: Type Frequency Sample Percent population Percent Conventional 29 76.32 68 Islamic 9 23.68 32 Chi-Square: 1.2076 Degree of Freedom: 1 Pr ChiSq: 0.2718 The results of chi-square test indicate whether the observed proportions from our sample differ significantly from the hypothesized proportion. In our case, the Islamic to conventional banks ratio does not differ significantly from the distribution of the population. Variable Definition A total of nine variables are used in the regression model. The variables are divided into two dependent variables representing the profitability measures of Islamic banking and they are Return on Average Assets (ROAA) and Return on Average Equity (ROAE), and seven independent variables which are Total Assets, Equity, Tangible Equity, Loans, Liquid Assets Deposits and Overheads. These seven variables represent four bank-specific internal factors which are Bank Size, Capital Structure, Liquidity and Liabilities. The table below summarizes the variables used in this study and the expected result. Dependent Variables ROA Return on Assets Net Income / Total Assets ROE Return on Equity Net Income / Equity Independent Variables Bank Size ASSETS Total Assets Log (Total Assets) Positive (+) Capital EQUITY Equity Equity / Total Assets Positive (+) TNGEQTY Tangible Equity Tangible Equity / Total Liabilities Positive (+) Liquidity LOANS Loans Loans / Total Assets Positive (+) LIQUID Liquid Assets Liquid Assets / Total Assets Positive (+) Liabilities DEPOSITS Deposits Deposits / Total Assets Negative (-) OVERHEAD Overhead Costs Overhead Costs / Total Assets Positive (+) Profitability Measures There are many ratios that have been used by researchers to measure bank profitability but the two most often used ratios are the return on assets (ROA) and the return on equity (ROE) (Iqbal et al., 2005). Return on Assets (ROA) Return of Assets ROA of a bank is the net after-tax income divided by its total assets (Rose, 2002). The return on assets (ROA) is the most important single ratio in comparing the efficiency and operating performance of banks since it indicates the return generated from the assets financed by the bank. Average assets are being used in this study, in order to capture any differences that occurred in assets during the fiscal year. Return on Equity (ROE) ROE is the ratio of a banks net after-tax income divided by its total equity capital (Rose, 2002). The return on equity (ROE) indicates how effectively the management of the enterprise (bank) is able to turn shareholders? funds (i.e. equity) into net profit. It is the rate of return flowing to the banks shareholders (Samad, 1999). The higher ROA and ROE reflect higher managerial efficiency of the bank and vice versa. Determinants of profitability Previous studies categorize determinants of profitability into internal factors and externals factors. Internal factors are basically the bank-specific characteristics such as bank size, concentration, liquidity, liabilities†¦etc. External factors can include macroeconomic such as inflation and GDP growth, and bank regulation rules and policies including restrictions and degree of independence from regularity authority. Total Assets Equity Tangible Equity Loans Liquid Assets Deposits Overhead Costs Methodology In line will the previous literature, Multiple Regression Equation will be used to examine the determinants of profitability in the Islamic Banking and compare the results with those of the conventional banking: Model 1 ROA ROA = ?1 + ?1 ASSET + ?2 EQUITY + ?3 TNGEQTY + ?4 LOANS + ?5 LIQUID +?6 DEPOSITS + ?7 OVERHEAD + ? Model 2 ROE ROE = ?2 + ?1 ASSET + ?2 EQUITY + ?3 TNGEQTY + ?4 LOANS + ?5 LIQUID +?6 DEPOSITS + ?7 OVERHEAD + ? Where: Independent Variables: ROA: Return on Assets ROE Return on Equity Dependent Variables: ASSETS: log (Total Assets) EQUITY: Equity / Total Assets TNGEQTY: Tangible Equity / Total Liabilities LOANS: Loans / Total Assets LIQUID: Liquid Assets / Total Assets DEPOSITS: Deposits / Total Assets OVERHEAD: Overhead Costs / Total Assets Data and Variables Descriptive statistics on the variables used in this study are provided in the tables below for both Islamic banks and conventional banks classified by year from 2006 to 2009. These descriptive information includes mean, maximum, minimum and standard deviation. These tables show some facts on the Islamic and conventional banking in the GCC. For example, looking at the ROAA, we can see that for the year 2006 and 2007, ROAA of Islamic banking was higher than for conventional banking. In the 2008, both Islamic banking and conventional banking has negative ROAA but conventional banking managed to turn it to positive in 2009 while Islamic banks could not. DEPOSITS ratio seems to be lower for Islamic banking than for conventional banking while EQUITY, TNGEQTY and OVERHEAD ratios are higher for Islamic banking. Descriptive Statistics Islamic Banks 2009 Variable N Mean Std Dev Minimum Maximum ROAA 9 -1.91444 10.23591 -28.41 4.96 ROAE 9 -4.86444 39.11601 -104.04 24.27 EQUITY 9 21.68 7.69115 13.19 36.56 ASSETS 9 3.82222 0.56597 3.1 4.66 LOANS 9 47.15778 24.11311 1.77 65.72 DEPOSITS 9 64.88667 23.51866 14.95 83.54 LIQUID 9 21.12 10.66565 3.96 30.96 TNGEQTY 9 28.78 13.73087 14.42 57.69 OVERHEAD 9 5.90333 11.95335 0.96 37.74 2008 Variable N Mean Std Dev Minimum Maximum ROAA 27 2.09926 6.92912 -30.07 10.19 ROAE 27 13.06037 12.53575 -32.08 31.62 EQUITY 27 25.30593 18.32378 6.34 92.32 ASSETS 27 3.52259 0.58526 1.98 4.64 LOANS 27 48.59185 25.39087 1.7 88.32 DEPOSITS 27 59.4037 24.60383 7.26 83.44 LIQUID 27 20.4963 13.30896 0.03 57.47 TNGEQTY 27 78.05333 227.56642 6.75 1201 OVERHEAD 27 3.11741 2.96539 0.34 14.45 2007 Variable N Mean Std Dev Minimum Maximum ROAA 27 5.15296 4.72983 -7.23 18.33 ROAE 27 20.48407 11.53482 -7.62 48.02 EQUITY 27 26.97037 17.2038 7.83 94.75 ASSETS 27 3.42037 0.5604 2.14 4.52 LOANS 27 46.58407 23.43044 2.34 82.81 DEPOSITS 27 58.54407 23.06997 5.03 82.97 LIQUID 27 23.71333 18.21896 0.26 81.09 TNGEQTY 27 100.49407 341.46581 8.53 1805 OVERHEAD 27 2.76074 1.92776 0.42 8.31 2006 Variable N Mean Std Dev Minimum Maximum ROAA 27 6.23 6.82785 -0.65 35.1 ROAE 27 20.65815 15.56718 -5.9 73.18 EQUITY 27 30.88 21.69757 7.63 95 ASSETS 27 3.24593 0.59087 2.17 4.45 LOANS 27 47.51926 25.52218 3.31 87.09 DEPOSITS 27 54.91407 24.9323 4.86 86.9 LIQUID 27 25.31519 19.19956 0.24 74.75 TNGEQTY 27 123.47296 361.45561 8.32 1899 OVERHEAD 27 2.83704 1.82051 0.62 7.53 Descriptive Statistics Conventional Banks 2009 Variable N Mean Std Dev Minimum Maximum ROAA 29 0.90793 3.97936 -18.62 4.68 ROAE 29 8.71724 18.09252 -73.23 29.78 EQUITY 29 14.9731 5.16499 8.6 26.18 ASSETS 29 4.09655 0.53291 2.65 4.84 LOANS 29 58.20172 17.37435 2.22 78.46 DEPOSITS 29 72.68069 16.93623 10.72 86.92 LIQUID 29 22.55172 9.11762 10.29 56.71 TNGEQTY 29 16.55138 6.94827 9.33 35.49 OVERHEAD 29 1.45724 0.75628 0.62 4.36 2008 Variable N Mean Std Dev Minimum Maximum ROAA 65 -0.61185 6.44206 -25.33 7.75 ROAE 65 2.97031 28.92545 -135.99 34.8 EQUITY 65 18.59492 12.67793 0.77 58.04 ASSETS 65 3.77046 0.67367 2 4.89 LOANS 65 51.28046 23.67111 0.27 82.01 DEPOSITS 65 67.40108 21.09781 2.1 87.45 LIQUID 65 20.20646 11.44084 3.79 75.84 TNGEQTY 65 25.90185 27.86691 0.74 138.23 OVERHEAD 65 2.19554 2.27083 0.21 11.04 2007 Variable N Mean Std Dev Minimum Maximum ROAA 65 4.514 4.11481 -2.77 20.43 ROAE 65 20.88708 13.08376 -36.87 88.04 EQUITY 65 21.11846 15.06605 6.59 69.91 ASSETS 65 3.73154 0.62688 2.22 4.84 LOANS 65 45.45323 21.72181 0.44 74.47 DEPOSITS 65 66.08862 19.94167 0.23 86.81 LIQUID 65 27.89123 12.72405 1.3 78.86 TNGEQTY 65 33.13277 40.9337 7.1 232.36 OVERHEAD 65 1.82338 1.41553 0.17 7.88 2006 Variable N Mean Std Dev Minimum Maximum ROAA 65 3.97323 3.81081 -6.76 19.4 ROAE 65 20.49815 12.11583 -11.08 57.34 EQUITY 65 21.05015 13.29398 7.59 74.16 ASSETS 65 3.60123 0.60934 2.13 4.62 LOANS 65 45.53354 23.21159 0.21 79.78 DEPOSITS 65 66.96662 19.32375 0.01 87.32 LIQUID 65 26.85492 15.27206 2.2 79.75 TNGEQTY 65 31.79769 39.7111 6.61 287.05 OVERHEAD 65 1.95 1.50485 0.16 9.25 Finally, by examining the total assets, we can see that the mean of total assets of the Islamic banks in the data sample grow from USD 4,375 to USD 13,654 over the last 4 year while for conventional banks, it grow from USD 8,664 to 21,323. Therefore, conventional banking in the GCC continue to be more significant in terms total assets as it continue to be around double the size of Islamic banks. 2009 2008 2007 2006 Islamic Banks 13,654 7,259 5,855 4,375 Conventional Banks 21,323 14,001 12,176 8,664 Mean of total assets from 2009 to 2006 Chapter 4: Results The objective of this thesis is to answer four different questions in the field of Islamic profitability. These questions are: How did the financial crisis affect the profitability of Islamic Banks in comparison to Conventional Banks? What are the internal factors (bank specific characteristics) that influence the profitability of Islamic banking for every year from 2006 2009? Did these factors have the same impact on the profitability of Islamic Banking before, during and after the financial crisis? Did these internal factors influence the profitability of Islamic Banking in the same manner as of the Conventional Banking? In this chapter we will cover the Pearson Correlation Coefficient and Multiple Regression results for the data sample and then we will address these questions and will evaluate the results of our model to answer these questions. Pearson Correlation Coefficient Multiple Regression Results: Multiple Regression Islamic Banking 2009 2008 2007 2006 Variable ROAA ROAE ROAA ROAE ROAA ROAE ROAA ROAE Constant -13.41662 (0.4556) -68.12575 (0.3232) -2.05837 (0.6674) -8.62794 (0.665) -0.90111 (0.8827) 13.32692 (0.5689) -4.69693 (0.4099) -22.51153 (0.2948) EQUITY -1.97496 (0.1753) -11.22477 (0.0822) 0.13918 (0.0309) 0.33912 (0.1847) 0.30097 (0.0005) 0.41231 (0.1418) 0.08089 (0.0581) -0.02646 (0.8612) ASSETS 0.56295 (0.6389) 5.63096 (0.2661) 1.6763 (0.1242) 9.3132 (0.0457) 2.35517 (0.098) 11.06649 (0.0455) 0.74877 (0.639) 9.72965 (0.1159) LOANS 0.22008 (0.248) 1.02925 (0.1699) -0.04436 (0.1955) -0.16085 (0.2562) -0.10047 (0.0105) -0.42275 (0.0055) 0.00102 (0.9785) -0.09114 (0.5237) DEPOSITS 0.01174 (0.7796) 0.05017 (0.74) -0.00065347 (0.9762) 0.01488 (0.8705) 0.00604 (0.8096) -0.01077 (0.9103) 0.00132 (0.9675) -0.0012 (0.9921) LIQUID 0.21807 (0.1201) 1.18075 (0.0583) -0.02457 (0.5638) -0.23683 (0.1909) -0.13613 (0.0012) -0.51207 (0.0014) 0.01464 (0.7246) 0.06183 (0.6913) TNGEQTY 1.38133 (0.157) 7.61263 (0.0764) 0.03772 (0.1142) 0.08201 (0.3954) -0.01262 (0.6752) -0.03393 (0.7674) 0.04259 (0.0964) 0.19132 (0.05) OVERHEAD -0.57273 (0.0903) -1.84497 (0.1084) -0.71891 (0.0089) -2.71259 (0.0157) -0.46159 (0.2363) -2.51031 (0.098) 1.13651 (0.0117) 2.62272 (0.0999) R-Square Adj R-Sq F Value 0.993 0.9684 40.46 (0.0243) 0.9938 0.9723 46.14 (0.0214) 0.5867 0.4058 3.24 (0.0243) 0.5182 0.3074 2.46 (0.0446) 0.7306 0.6196 6.59 (0.0007) 0.5246 0.3289 2.68 (0.0459) 0.6515 0.508 4.54 (0.0051) 0.5075 0.3047 2.5 (0.058) Multiple Regression Conventional Banking 2009 2008 2007 2006 Variable ROAA ROAE ROAA ROAE ROAA ROAE ROAA ROAE Constant -10.88633 (0.0139) -91.83821 (0.0297) -10.67959 (0.1406) -132.16843 (0.0163) -3.77033 (0.3214) -0.31186 (0.9891) 7.27075 (0.0612) 32.97334 (0.0588) EQUITY 0.33083 (0.03) 2.39759 (0.0964) -0.00521 (0.9454) 1.25524 (0.0303) 0.17778 (.0001) 0.12709 (0.5596) -0.03245 (0.3994) -0.55738 (0.002) ASSETS 0.78281 (0.1739) 7.73299 (0.168) 0.38106 (0.7189) 9.01256 (0.2563) 0.82674 (0.1558) 1.24962 (0.7203) -0.05295 (0.9303) 2.18287 (0.4232) LOANS -0.00133 (0.9465) -0.08544 (0.6581) 0.09645 (0.0007) 0.55782 (0.0074) -0.01068 (0.4705) 0.03734 (0.6759) -0.05022 (0.0027) -0.19802 (0.0077) DEPOSITS 0.05068 (0.0043) 0.5118 (0.0033) 0.06176 (0.1168) 0.63715 (0.0318) 0.00038022 (0.9856) 0.10103 (0.4279) -0.0126 (0.6311) 0.02699 (0.8186) LIQUID 0.04603 (0.2447) 0.51275 (0.1857) 0.0377 (0.3812) 0.2446 (0.4458) -0.01352 (0.4871) -0.05074 (0.6659) -0.03675 (0.0669) -0.26966 (0.0035) TNGEQTY -0.0743 (0.4851) -0.93751 (0.3678) -0.00109 (0.7013) -0.00828 (0.6955) 0.00553 (0.3401) 0.00522 (0.8811) -0.00049447 (0.6286) -0.00277 (0.547) OVERHEAD 0.83202 (0.0026) 6.30294 (0.014) -0.5853 (0.0548) 0.38398 (0.8634) 1.16224 (.0001) 3.53925 (0.0072) 0.81043 (0.0002) 2.85144 (0.0032) R-Square Adj R-Sq F Value 0.7743 0.6865 8.82 (.0001) 0.5862 0.4253 3.64 (0.0127) 0.5856 0.5298 10.5 (.0001) 0.2851 0.1889 2.96 (0.0109) 0.8172 0.7925 33.2 (.0001) 0.1667 0.0545 1.49 (0.1929) 0.5474 0.4865 8.98 (.0001) 0.4378 0.3621 5.78 ( .0001) Question 1 The first question to be addressed in the research is how the financial crisis affected the profitability of Islamic Banks in comparison to Conventional Banks. Since we are mainly focusing on ROAA and ROAA as measures of profitability, the most appropriate approach would be to evaluate how these ratios fluctuate during the financial crisis. Looking at the mean value of ROAE and ROAA from 2006 to 2009, we can find that although Islamic banks performed better in 2006 and 2007 in terms of ROAA while had almost similar value for ROAE, 2008 can be considered to be the worst in term of profitability for both Islamic and conventional banks. However the values for ROAA and ROAE were much lower for Islamic banks (ROAA: -1.91, ROAE: -4.86) than for conventional banks (ROAA: -0.61, ROAE: 2.97). 2006 2007 2008 2009 Islamic Banks ROAA 6.23 5.15 -1.91 2.10 ROAE 20.66 20.48 -4.86 13.06 Conventional Banks ROAA 3.97 4.51 -0.61 0.91 ROAE 20.50 20.89 2.97 8.72 Mean value for ROAA and ROAE for Islamic and conventional banks For 2009, Islamic banks managed to turn these ratios back to positive figures as well as the conventional banks. Furthermore, Islamic banks had higher ROAA and ROAE ratio than the conventional banks. The two figures below show the ROAA and ROAE for Islamic and conventional banks in GCC from 2006 and 2009. ROAA and ROAE for Islamic Banks ROAA and ROAE for Conventional Banks Question 2 The second question in this thesis has to deal with the internal factors (bank specific characteristics) that influence the profitability of Islamic banking for every year from 2006 2009. In the Literature Review chapter, and in order to evaluate the different aspects of bank characteristics, we classified the internal factors to be examined into four categories. These categories are Bank Size, Capital Structure, Liquidities and Liabilities of the Bank. Bank Size In our study, we used the Total Asset to measure bank size. ROAA and ROAE continue to positive relationship with ASSETS for the period from 2006 to 2009 despite the crisis which agrees with Molyneux and el (2004). However, our results show positive significant relationship between both ROAA and ROAE with ASSETS in year 2007 only. For years 2006, 2008 and 2009, the relationship is positive but not significant to reject the null hypothesis. Capital Structure Two factors were used to evaluate the Capital Structure in relation to profitability: EQUITY and TNGEQTY. EQUITY has positive significant relationship with ROAE in years 2006 and 2007. Also, EQUITY has positive relationship with ROAE in 2008 and negative relationship in 2009 but both are not significant to reject the null hypothesis. Also, EQUITY has significant positive relationship with ROAA in years 2006, 2007 and 2008 but positive and not significant for year 2009. Therefore, our results agree with Hassan and Bashir (2004) for years 2006 and 2007. As for the TNGEQTY, it continue to have negative relationship with ROAA and ROAE for the period from 2006 to 2009 except with ROAE for year 2009 where we have negative but not significant relationship. The relationship is positive and significant with ROAE in years 2007 and 2008 and with ROAA in years 2006, 2007 and 2008. Liquidities LOANS and LIQUID both were used in this study to understand the relationship between profitability and Liquidities of the Islamic banking. LOANS have negative relationship with ROAE and ROAA in years 2006, 2007 and 2008 but positive and not significant in year 2009. The relationship is significant negative in years 2007 and 2008. This contradicts with our hypothesis and with Demirguc-Kunt and Huizinga, (1997) who found positive relationship between LOANS and bank profitability. As for LIQUID, it has negative relationship with ROAE and ROAA in all years expect for 2009 and the relationship is only significant in year 2007. This again contradicts with our hypothesis and with Beltratti and Stulz (2009) who found that LIQUID has positive and significant relation with profitability. Liabilities DEPOSITS and OVERHEAD were used as determinants for Liabilities. DEPOSITS have negative relationship with ROAE and ROAA in years 2006 and 2007 but positive in years 2008 and 2008 but none is significant. Therefore, the null theory cannot be rejected and our results dont agree with Bashir and Hassan (2004) who found a negative relationship with profitability. As for the OVERHEAD, the relationship with ROAE and ROAA is negative for the period from 2006 to 2009 but only significant in year 2008. This contradicts with Alkassim (2005) who included OVERHEAD in his research and found positive relationship to profitability. Question 3 The third question in the study is to understand if these factors have the same impact on the profitability of Islamic Banking before, during and after the financial crisis? Bank Size ASSETS continue to have positive relationship with ROAE and ROAA. This means that despite the crisis, bigger banks continue to be more profitable than smaller banks Capital Structure EQUITY always has positive relationship with ROAE and ROAA throughout the period expect for ROAE in year 2009. Also, TNGEQTY always has negative relationship with ROAE and ROAA before, during and after the crisis except for ROAE in year 2009. This means that banks with better capital structure are in general less risky and more profitable but this seems to be changed after the crisis. Liquidates Both LOANS and LIQUID have negative relationship with ROAE and ROAE before and during the crisis (2006 to 2008) but positive relationship after the crisis (2009). This means that before and during the crisis, the banks with less assets are tied to loans and with less liquid assets tend to be more profitable. But this reverse after the crisis. Liabilities OVERHEAD always has negative relationship with ROAE and ROAA before, during and after the crisis. As for DEPOSITS, it has negative relationship in years 2006 and 2007 and it turns positive in years 2008 and 2009. This means that bank with more deposits tend to be more profitable during and after the crisis. Question 4 Last question in this study has to deal with Conventional Bank if the same internal factors influence the profitability of Islamic Banking in the same manner as of the Conventional Banking. Bank Size ASSETS has a positive relationship with ROAE and ROAA for both Islamic Banking and Conventional Banking which means that for both Banking and Conventional Banking, bigger banks tend to be more profitable despite the crisis. Capital Structure For the Conventional Banking, EQUITY has positive relationship with ROAE and ROAA for the period from 2006 to 2008 but negative relationship in year 2009. TNGEQTY has a negative relationship from 2006 to 2008 but positive in year 2009. As for the Islamic Banking, EQUITY always has positive relationship with ROAE and ROAA expect for ROAE in year 2009. Also, TNGEQTY always has negative relationship with ROAE and ROAE except for ROAE in year 2009. This means that EQUITY and TNGEQTY has the same impact on profitability for both Islamic and Conventional Banking before, during and after the crisis Liquidities For Conventional Banking, LOANS always has positive relationship with ROAE and ROAA expect for year 2006 while LIQUID always has negative relationship with ROAE and ROAA except for year 2008. For Islamic Bank, both LOANS and LIQUID have negative relationship except for year 2009. This means that the LOANS have different relationship with profitability for Islamic and Conventional Banking as it is positive for Conventional Banking (except for year 2009) and negative for Conventional Banking (except year 2006) While LIQUID has negative relationship for both Islamic Banking (except year 2009) and Conventional Banking (except year 2008) Liabilities For Conventional Banking, DEPOSITS and OVERHEAD both have positive relationship with profitability except for DEPOSITS in year 2006 and OVERHEAD for year 2008. For Islamic Banking, DEPOSITS has negative relationship for years 2006 and 2007 but positive relationship for year 2008 and 2009 while OVERHEAD has always negative relationship. Chapter 4: Conclusion

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Judge (2011) Organizational Behaviour 15th Edition New Jersey: Prentice Hall393164 Words   |  1573 PagesFoundations of Organization Structure 479 v vi BRIEF CONTENTS 4 The Organization System 16 Organizational Culture 511 17 Human Resource Policies and Practices 543 18 Organizational Change and Stress Management 577 Appendix A Research in Organizational Behavior Comprehensive Cases Indexes Glindex 637 663 616 623 Contents Preface xxii 1 1 Introduction What Is Organizational Behavior? 3 The Importance of Interpersonal Skills 4 What Managers Do 5 ManagementRead MoreDeveloping Management Skills404131 Words   |  1617 PagesManager: Kelly Warsak Senior Operations Supervisor: Arnold Vila Operations Specialist: Ilene Kahn Senior Art Director: Janet Slowik Interior Design: Suzanne Duda and Michael Fruhbeis Permissions Project Manager: Shannon Barbe Manager, Cover Visual Research Permissions: Karen Sanatar Manager Central Design: Jayne Conte Cover Art: Getty Images, Inc. Cover Design: Suzanne Duda Lead Media Project Manager: Denise Vaughn Full-Service Project Management: Sharon Anderson/BookMasters, Inc. Composition: IntegraRead MoreFundamentals of Hrm263904 Words   |  1056 Pagespossible for the dynamic present and unpredictable future environment of HRM. All research has been updated and examples have been kept as current as possible considering the timeline necessary for publishing a textbook. Some examples will undoubtedly change quickly and unexpectedly. Please consider this an opportunity to research how and why these changes took place and their implications for HRM. Many sources for research and updates have been included in the chapter content and HRM Workshop learning

The Importance of Workplace Mentors-Free-Samples for Students

Questions: 1.How do you think that you could benefit from having mentor during the initial years of your Professional Employment? 2.Provide details of 2 activities that you are going to undertake as part of your Professional Career Planning. Answers: 1.Guidance of a mentor during the initial years of employment is very important and useful as well. A senior and an experienced colleague, who plays the role of a mentor, can deliver invaluable help and suggestion to a new employee in the beginning of his or her Career. A new employee generally knows very little about his/her work and standard of working and is prone in doing mistakes (Kupersmidt and Rhodes 2014). A mentor can guide these employees through these situations and help them in learning and growing inside the organization. The advantage of having a mentor in the workplace is that the new employee makes fewer mistakes in the job cutting the losses of the employer. Moreover, the guidance of a mentor helps the employer to be a self-directed individual and develop stronger communication and problem solving skill. In professions like IT help desk, guidance of a mentor helps the new employee in understanding the issues of the computer systems, hardware and software (Abbajay 201 3). They also guide the employees in installing and repairing the system and answering the customers query in a proper manner. This will help in excelling in the job and in learning new things and processes more effective and quickly. 2.Two activities that can be undertaken as a professional career planning are attending ACS events and gaining accreditation in specific technical areas such as in computer networking. Australian Computer Society or ACS is an association of information and communication technology (ICT) profession in Australia. ACS helps its members in realizing their ambition in relation to their profession. ACS is passionate in identifying the professionalism and developing the ICT skills of an individual (Bernus and Nemes 2013). Therefore, ACS will definitely be a great help in the progression of the professional career. ACS promotes the development of the information and communication technology resources of Australia and thus it will provide a considerable help in career planning. ACS will provide the guidance of choosing further jobs in accordance to the profession and will help in applying for the perfect job as well. Gaining accreditation offers the opportunity of continuous improvements as accreditation is a proof that an individual has met certain standards and criteria of the program. Accreditation assures that the professional has a sturdy educational foundation and these helps in getting new job opportunities and bagging a better job (Meyer and Leonard 2014). Gaining accreditation also signifies that the individual has expertise in a particular field. This is a proof of experience of an individual in his or her field of expertise and thus it will help be a considerable help in the professional career. Thus gaining accreditation in the field of expertise can be considered for future benefits in the career and to get job opportunities according to the area of expertise. Moreover, an accreditation will help in obtaining the preference in job application, as it is a proof of expertise in that particular field. Thus gaining an accreditation in networking is anticipated and needed. References Abbajay, M., 2013. The working life: the importance of workplace mentors. Bernus, P. and Nemes, L. eds., 2013.Modelling and methodologies for enterprise integration: proceedings of the IFIP TC5 Working Conference on Models and Methodologies for Enterprise Integration, Queensland, Australia, November 1995. Springer. Kupersmidt, J.B. and Rhodes, J.E., 2014. Mentor training.Handbook of youth mentoring, pp.439-456. Meyer, A.L. and Leonard, A., 2014. Are we there yet? En route to professionalism.Public Relations Review,40(2), pp.375-386.

Writing A Research Proposal Guidelines

How To Write A Research Proposal And Get The Best Grade Just when you thought writing essays was getting to be a bit too much, now your professors are asking you to write proposals to write essays. This can feel quite debilitating especially if you don’t know how to write a research proposal. To start, academic writing comes in several shapes and sizes. You’ll be required to learn many citation formats, meet ridiculous word counts on empty subjects and somehow do it without accidentally plagiarizing anything in the process. If you’re exhausted from meeting all these particularities, help is on the way. We’ve assembled this intuitive research paper guide to get you writing a paper proposal like a pro! We’ve covered all major details from developing a research plan to delivering an effective presentation to get your work approved. Read on to get the edge you need and overcome this challenge. What Is A Research Proposal? In addition to yet more work a research proposal actually is quite important. It demonstrates that you understand the topic at stake and you can properly set a plan of action to investigate your proposal questions. Your text also indicates why the research is worthwhile. After graduating, often you’ll need to make a case to initiate a project. This is an integral part of working in the sciences, particularly when you’ll need to request resources for your work. Therefore, it is important you take the time to develop your academic proposal skills for your future career. How To Write A Proposal For A Research Paper? Okay so let’s delve into the details. Our guide will walk you through each section and hit upon the main requirements found in a typical paper proposal. Your instructor may have some preferences so be sure to always follow those as well as the formatting guidelines for the required citation style. Many students who want to save time, skip over this part and opt to buy a research proposal from professional writers. This allows them to get a head start with their research and a great strategy to manage your deadlines. You’ll buy time to work on the actual paper instead of being bogged down in the details. Research Proposal Format The format for your assignment is largely dictated by the set citation style. By now you should be familiar with a couple of the common styles such as APA or MLA. Some style guides require a title page or a running head while others do not. Also, pay attention to the font you use for your scientific proposal all style require a legible font and may have spacing and margin guidelines. Research Proposal Abstract In the academic community the abstract is what sells your paper. It is a brief synopsis of the questions you aim to explore as well as the current state of knowledge. Many professors will first read the abstract to get a snapshot of what your text contains. A well written abstract will be concise, yet interesting which can be a hard balance to strike, especially if writing is not your strong suit. Initiate interest by giving an overview of the current state of knowledge and how you plan to contribute to it. This will go a long way in building interest for your work. The abstract will also guide the reader to jump to points of interest in your paper. Mention key elements of your planned work and how you plan to tackle these questions. Research Paper Proposal Outline The outline is the backbone of your text. It will help streamline your ideas and how to put them together in a completed work. Many students neglect writing a research paper outline, but a proper outline gives general topic headings you’ll include in the paper. The best advantage of this, is you’ll save time by connecting your research how you’ll proceed with writing. With a visual of how to conduct your research most efficiently, you won’t have to revisit sources multiple times. You’ll also be able to start writing your paper at any point and don’t need to go from beginning to end. Research Proposal Structure There are a few key sections for your research topic proposal. Here is a run down of the sections to include in your paper. Introduction – A few parts of the intro is your lead-in, background information, and your thesis statement. Start your lead-in with an introduction that garners interest with a strong hook. You may quote a controversial statistic you plan to investigate or a question your peers often ask themselves about a contemporary subject. This will setup a strong transition for any background information on the topic which will then follow with your thesis statement. Your thesis is the basis of your paper and should be relevant through the entire text including your conclusion. Literature review – Here you demonstrate your knowledge on your subject. Mention texts you’ve read and how they reinforce the background of your topic proposal and especially any knowledge gaps that serve as a driver for your research. Methodology – Scientific work must be based on logical conclusions and the only way to have consistent and accurate data is through proper technique. In this section detail what experiments or studies you plan to conduct. Ensure your methods are logical and on point with your thesis statement. When another scientist reads your methods, they should be able to duplicate your tests and obtain similar results. Expected Results – It may not seem possible to indicate the expected results, especially when venturing into unknown territory. But with solid background knowledge, you’ll be able to formulate a hypothesis of what to expect. Certainly the results of many college proposal have differed in practice, so don’t get discouraged if your expected results deviate from reality. You’ll have plenty of time to document the discrepancies in your actual paper. Conclusion – Don’t wing this. The conclusion is what leaves the reader with an impression so make it memorable. Restate your thesis, why it is important and what you aim to achieve. Give a consolidated summary to persuade your professor to approve your topic. Research Proposal Topics When you write a research proposal you may be stuck trying to find the best topic that will be interesting and have sufficient material to develop your paper for a high grade. The key here is to be relevant. You may have a pet subject you’re passionate about, but if doesn’t appeal to the larger audience, your paper will likely be rejected. A good tip is to check with academic publications in your field and see what questions leading researchers are working on. This will provide a blueprint that is relevant to your studies and greatly improve the chances of your work being approved. Research Proposal Presentation Tips When you pitch your proposal, nothing sells better than confidence. Take time to prepare and think of any questions your audience may ask. You may find it useful to practice with friends and ask for feedback how you can improve the delivery. Ask what they like, or dislike and if they have any questions. It is important to give a good impression as to why your work is important and the questions you will explore. Include a list of visual aids to encourage interest in your work. A few graphs to indicate a problem as well as an explanation of how you intend to solve it will work well to keep your audience engaged and follow your presentation. Professors appreciate the effort you put into your proposal so do not neglect this step. Students who craft the best proposals are seen more serious and are given more authority to follow their passions instead of towing the line with the curriculum. Show that you have what it takes to be a lead scientist in your discipline with a well crafted proposal. And as always, if you find yourself a rock in a hard place, our professional writers are always available to help you put together a high quality proposal at a moments notice.

Sony And Marketing Essays - Marketing, Sony, Societal Marketing

Sony And Marketing Essays - Marketing, Sony, Societal Marketing Sony and Marketing WHAT MARKETING IS: The primary concern or objective of marketing is to identify and satisfy, or exceed the changing needs of customers. In view of this broad concern of marketing, it can be seen that the concept of marketing encapsulates many activities in a business. Marketing, in fact, refers to any activity undertaken by a firm that has been designed to plan, price, promote and distribute ideas, goods and services to target markets. These marketing activities were executed in order to create exchange, that is sales, that will result in the achievement of the proprietors' individual goals and the firm's goals, both in the short-term and the long-term. It is then obvious that marketing forms an integral component of any business's operations. In particular marketing activities attempt to increase a firms' revenue base, by placing an emphasis on enticing potential customers in target markets to purchase the firms' products in order to satisfy their wants, rather than those of firm's competitors. Consequently, the marketing directly contributes to the attainment of the financial goals of the firm. Hence, the success of a firm is reliant upon the extent to which it is able to identify, and satisfy or exceed the customer's needs more effectively and efficiently relative to its competitors vying for the same markets. Marketing as an activity that entails several features, all of which are presented during the course of the marketing process. Such features include, firstly and most importantly, that marketing is a comprehensive process that begins with the creation of an idea and ends up as product that will be sold to satisfy a customer's needs. Secondly, marketing is seen as a managerial process as it involves making managerial decisions about the particular mix of product, price, place and promotion in a firm. Furthermore, marketing involves managers planning and ensuring that particular sequenced activities are carried out, in order for the marketing plan to be successful. Finally, marketing is perceived as a way in which firms are able to satisfy the needs of customers, and in turn achieve their own business goals. APPROACHES TO MARKETING: Marketing provides the business with the ability to satisfy the changing wants of customers. In light of this, and the fact that businesses have become increasingly aware of the role that marketing plays in achieving success in the business, several approaches or philosophies to marketing have developed. There are five central approaches to marketing, with the use of a specific marketing approach/s depends upon particular business's marketing strategy and the type of product being marketed. These different approaches are: Marketing Concept: this approach believes that customer's want-satisfaction is the economic and social reason for an organisation's existence. This approach stipulates that all of the business's activities should be targeted towards meeting consumer wants, while at the same time meeting the organisation's goals. In effect, this approach requires that the firm finds out what the customer wants, and subsequently develops a product to meet these requirements and then sell it at a profit. Production Concept: this approach states that the business will sell its product if it is both well made and affordable. Businesses utilising this approach require management to focus on improving production techniques and cost structures of the business. Consequently, this approach does not place emphasis on customer want-satisfaction. Product Concept: this approach has the attitude that 'product is king' and focuses on the quality, features, and performance of the product. This approach believes that if the product has more features or is of a better quality and performance compared to competitors, it will then gain greater sales. This approach is not customer want-satisfaction oriented. Selling Concept: this approach focuses on developing sales techniques and promotional activities in order to entice customers into buying an organisation's product, whether they want it or not. Therefore this approach places direct emphasis on customers, but, possibly not on their want-satisfaction. Societal Marketing Concept: this is the latest marketing approach, it combines the main ideas of the marketing approach, that is, determining customer needs and satisfying the business's goals, but also integrates social responsibility into the business. This social responsibility includes increasing environmental awareness, which may include tackling the problems of pollution and the exploitation of non-renewable resources. Modern day businesses are

Free Essays on Exploring The Affect Society Has On The Shaping Of Human Behavior

There are numerous aspects of social interaction used in the shaping of social relationships. For the purpose of this paper, I thoroughly examined the theories of â€Å"Self-perception† and â€Å"Social perception â€Å"I decided to focus on the views given by Sociologist’s Erving Goffman and Charles Darwin throughout chapter four. According to sociologist Erving Goffman, social interaction should be compared to a theatrical performance, with the members of society playing the roles of actors or actresses. Performers often worry and stress prior to going on stage. They worry about what the spectators will think? Will they ever get another role? How will they know if the spectators like their performance, and if they don’t what will happen to their career? Goffman believes â€Å"self-presenters sometimes worry about being judged incompetent; they often rehearse prior to their performance†. However, performers are not the only individuals who are self -presenters. Society is full of norms and rules that are socially acceptable or unacceptable. These societal norms shape and mold the behavior of human behavior throughout society. Individuals, who try to fit into those norms and rules, often find themselves rehearsing their roles and behavior. For example, applicants going for job interviews often rehearse what they will, and will not say in the interview. An applicant also observes the interviewers body language and responses, in order to figure out if they are being accepted or rejected. Goffman, gives the example of an individual preparing â€Å"for a romantic dinner date, for instance, you might purchase your date’s favorite wine, splash on some enticing cologne, and bring a romantic CD as a gift (the props) that will later be played at the right moment to properly set that stage for your romantic self-presentation. You might even practice your romantic gazes and postures in front of a mirror or rehearse a romantic speech beforehand† (... Free Essays on Exploring The Affect Society Has On The Shaping Of Human Behavior Free Essays on Exploring The Affect Society Has On The Shaping Of Human Behavior There are numerous aspects of social interaction used in the shaping of social relationships. For the purpose of this paper, I thoroughly examined the theories of â€Å"Self-perception† and â€Å"Social perception â€Å"I decided to focus on the views given by Sociologist’s Erving Goffman and Charles Darwin throughout chapter four. According to sociologist Erving Goffman, social interaction should be compared to a theatrical performance, with the members of society playing the roles of actors or actresses. Performers often worry and stress prior to going on stage. They worry about what the spectators will think? Will they ever get another role? How will they know if the spectators like their performance, and if they don’t what will happen to their career? Goffman believes â€Å"self-presenters sometimes worry about being judged incompetent; they often rehearse prior to their performance†. However, performers are not the only individuals who are self -presenters. Society is full of norms and rules that are socially acceptable or unacceptable. These societal norms shape and mold the behavior of human behavior throughout society. Individuals, who try to fit into those norms and rules, often find themselves rehearsing their roles and behavior. For example, applicants going for job interviews often rehearse what they will, and will not say in the interview. An applicant also observes the interviewers body language and responses, in order to figure out if they are being accepted or rejected. Goffman, gives the example of an individual preparing â€Å"for a romantic dinner date, for instance, you might purchase your date’s favorite wine, splash on some enticing cologne, and bring a romantic CD as a gift (the props) that will later be played at the right moment to properly set that stage for your romantic self-presentation. You might even practice your romantic gazes and postures in front of a mirror or rehearse a romantic speech beforehand† (...