An Early Warning System for Islamic Banks Performance

Al-Osaimy, Mahmood H.; Bamakhramah, Ahmed

doi:10.4197/islec.17-1.1

Cited by 14 publications

(7 citation statements)

References 5 publications

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“…As a robustness check of our methodology, we compare the results of the cluster-based methodology with a ranking system proposed by Al-Osaimy and Bamakhramah (2004) and Othman (2013). This system ranks banks based on their financial performance using a 10-point scale; where one indicates the worst, while ten presents the best.…”

Section: Robustness Testmentioning

confidence: 99%

An assessment of the financial soundness of the Kazakh banks

Salina

Zhang

Hassan

2020

AJAR

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PurposeThe contribution of the banking industry to the financial crisis of 2007/8 has raised public concerns about the financial soundness of banks around the world with many countries still suffering the backlogs of this crisis. The continuous emergence of such crises at both national and international levels increases governments', bank regulators' and financial market participants' need for reliable tools to assess the financial soundness of banks. In this context, this study investigates the financial soundness of the Kazakh banking sector, which is ranked by the World Bank as the first in the world in terms of the percentage of nonperforming loans (NPL) to total gross loans in 2012.Design/methodology/approachUsing data about all Kazakh banks over the period January 01, 2008 to January 01, 2014, the study identifies a number of accounting indicators that influence the financial soundness of banks using principal component analysis (PCA). Then, it uses the outcomes of the PCA in a cluster analysis and groups the Kazakh banks into sound, risky and unsound banks at two points in time: January 01, 2008 and January 01, 2014. This methodology was further tested against a ranking system of banks and proved to be more reliable in detecting risky banks.FindingsFifteen financial ratios were initially selected as accounting indicators for the assessment of bank financial soundness. Using PCA, twelve indicators were isolated, which explain five principal components of capital adequacy, return on assets, profitability, asset quality, liquidity and leverage. Then using the “k-means” method, the results suggest a structure of the Kazakh banking sector on January 01, 2008 that includes two groups of banks: sound and risky banks. On January 01, 2014, this structure of the banking system has changed to include three groups of banks: sound, risky and unsound banks. Thus, in 2014 a new group of banks has emerged, i.e. financially unsound banks.Practical implicationsThe proposed cluster-based methodology has proven to be a reliable tool to detect the financial soundness of Kazakh banks, which makes us advocate its employability for bank monitoring and supervision purposes.Originality/valueThis study is the first to employ a cluster-based methodology to assess the financial soundness of a banking sector. This methodology can be used at a micro-level to determine the structure of a banking sector. Also, it can be used to monitor any changes in the structure of a banking sector and provide early warning signals about the financial health of banks.

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Section: Robustness Testmentioning

confidence: 99%

An assessment of the financial soundness of the Kazakh banks

Salina

Zhang

Hassan

2020

AJAR

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“…For example, Meyer and Pifer (1970) used linear probability model to predict bank failure. Al-Osaimy and Bamahramah (2004) and Cihak and Hesse (2008) used multi-discriminant analysis (MDA) to analyze Islamic bank performance. Furthermore, Dewaelheyns and van Hulle (2007) and Erdogan (2008) used distributed lag model and logit to forecast probability of default in conventional bank.…”

Section: Literature Reviewmentioning

confidence: 99%

Treating return of mudharabah time deposit as investment instrument

Anwar

Romansyah²,

Pramono³

et al. 2010

Humanomics

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Purpose -The purpose of this paper is to propose the development of return forecasting model for mudharabah time deposit product in Islamic bank based on artificial neural networks (ANNs). Design/methodology/approach -The analysis consists of two main elements. First element is the identification and selection of significant macroeconomic variables that determine return volatility of mudharabah time deposit in Indonesian Islamic bank industry. Second element is the implementation of appropriate ANNs model according to neural networks properties, and model evaluation based on simulated return predictions of mudharabah time deposit product in Bank Syariah Mandiri (RR-BSM). Findings -It is shown that monthly changes of return can be predicted quite well. The model provides a satisfactory result in forecasting RR-BSM for 12 months ahead with 95.22 per cent accuracy. These results suggest that the ANNs can be applied as an adequate tool to help depositors in predicting future return of mudharabah time deposit product. Originality/value -There is believed to be no other empirical study of Islamic banks that exclusively examines the utilization of ANNs to forecast time deposit return as well as return from other investment instruments.

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“…(b) Previous studies that examine identic problems also use the same ratios in measurement, both for islamic banking and conventional banking. So it can be implemented in both agencies (Al-Osaimy and Bamakhramah, 2004;Hameed et al, 2006). (c) Data to be collected by researchers is much easier, because the data source is the annual financial statements of banks.…”

Section: Maqashid Sharia Indexmentioning

confidence: 99%

Efficiency and Performance of Islamic Bank: Quadrant Analysis Approach

Firmansyah

2018

IJIBEC

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The purpose of this study is to analysis the level of efficiency of Islamic banks through the ratio used as a measure of operational efficiency that is the operational expense tooperational revenue, knowing the level of bank performance of the assessment in accordance with the principles of islamic bank is maqashidsharia index, and know the cluster quadrant of each syariah bank through a combination of efficiency assessment and performance of maqashidsharia. All research data is taken from the financial statements of Islamic banks in Indonesia through their respective websites. The research period is the year 2012 until 2016. The results showed that banks that are in the highest efficiency quadrant and high performance of sharia maqashidis Panin Bank of sharia. The results of this study indicate that PaninSyariah bank has successfully used operational costs to obtain high operating income, and has also succeeded in achieving good performance of sharia maqashidcompared with other Islamic banks in Indonesia.

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An Early Warning System for Islamic Banks Performance

Cited by 14 publications

References 5 publications

An assessment of the financial soundness of the Kazakh banks

An assessment of the financial soundness of the Kazakh banks

Treating return of mudharabah time deposit as investment instrument

Efficiency and Performance of Islamic Bank: Quadrant Analysis Approach

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