Islamic Banks Financial Performance and Implications of Basel III Standards in the GCC: An Empirical Analysis
Journal Title: Review of Economics & Finance - Year 2017, Vol 7, Issue 1
Abstract
This study empirically evaluates Islamic banks financial performance and implications of Basel III regulations in the Gulf Cooperation Council (GCC) region. We utilize bank-level data for 24 Islamic Banks based in six GCC countries (namely, Kuwait, United Arab Emirates, Kingdom of Saudi Arabia, Oman, Qatar, and Bahrain) for the period of 2006 to 2015. Financial performance is measured by using both Internal–based performance measure (Return on Assets) and Marketbased performance measure (Tobin’s Q model). We employ regression analysis to capture the impact of bank size, credit risk, operational efficiency and asset management on performance measured by the two indicators. Moreover, to control for the implications of Basel III standards, we run our model with a dummy ‘control’ variable. The results reveal that the explanatory power of the internal–based performance model is higher than the market-based performance model. Not surprisingly, the results also indicate that financial performance of GCC Islamic banks is highly sensitive to Basel III regulations. We argue that findings of this study highly useful for capitalmarket participants who are interested in Islamic banking industry, in particular, GCC region.
Authors and Affiliations
Osama M. Al-Hares, Kashif Saleem
Keywords
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