Improving Banking Supervisory Mechanisms
In the OIC Member Countries
73
5.4 Profitability in Islamic Banking
Table 36: ROA, Islamic Banking
2007 2008 2009 2010 2011 2012 2013
Turkey 2,78 3,05 2,25 1,91 1,57 1,40 1,27
Indonesia 3,83 2,26 0,68 0,83 1,23 1,38 0,96
Malaysia 0,23 0,51 0,62 0,64 0,06 0,78 0,95
Pakistan 0,96 0,95 0,19 0,72 1,57 1,40 3,57
S.Arabia 3,07 3,20 1,63 1,45 2,12 2,71 2,22
UAE 3,44 1,42 -0,57 0,02 0,59 0,91 1,10
Source: KFHR
Banking profitability is one of the most important indicators for banking soundness.
Comparing the profitability of the Islamic banks with conventional banks in OIC member
countries, we observe a similar pattern. Even though conventional banks on average have a
relatively higher return on assets, return on assets (ROA) of Islamic banking is also
satisfactory.
Table 37: ROE, Islamic Banking
2007 2008 2009 2010 2011 2012 2013
Turkey 22 23 17 15 14 14 14
Indonesia 16 18 9 11 9 12 14
Malaysia 13 7 9 10 6 11 13
Pakistan 5 3 -1 1 8 8 7
S.Arabia 16 11 6 9 12 17 14
UAE 18 10 -4 0 4 6 8
Source: KFHR
Return on equity figures in Islamic banking for the selected OIC member countries appear to
be, generally, double-digit numbers. These figures are comparable with conventional banking
in the same countries and better than many of the European and US banks. Therefore, one can
conclude that Islamic banking in OIC countries currently produces a sustainable profit. This
observation confirms the findings of Thornbeck et al (2013).
5.5 Liquidity Risk in Islamic Banking
Basel III liquidity risk requirements may negatively affect Islamic banks, since Islamic money
market instruments are traded in relatively illiquid markets. Therefore, Islamic banks may find
it difficult to attain the Liquidity Coverage Ratio, which requires a large portion of assets to be
held in the form of short-term maturity. Liquidity levels of the banks in the selected OIC
member countries are provided in Table 38, which shows that liquidity ratios of almost all
countries seem to be better than conventional banks. Despite current statistics, Liquidity
Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) of the new Basel III may be a
problem for Islamic banking.