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"Islamic Financial Services Board"
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Ranking methodology for Islamic banking sectors – modification of the conventional CAMELS method
The state of banking systems is an important issue. The purpose of this paper was to test whether the well-known CAMELS microeconomic methodology, generally used for ranking banks, is applicable to evaluating Islamic banking systems. The hypothesis was tested by implementing a method for a particular case, public, free data – from 2013 till the first quarter of 2018 – on Islamic banking systems from the “Islamic Financial Services Board” (IFBS) database. As expected, modifications were necessary. First, because of the lack of data (in Islamic databases, no data refer to the management (“M”)), and second, to avoid the subjectivity of the five-degree method and to reach more sensibility. Thus, a hundred-level (standardized) rating system was introduced – “CAELS 100”, where “100” refers to the levels. The other part of the methodology – creating a simple average of the (now level 100) rating of raw indicators to get the letters of CA(M)ELS in the relevant period – remained unchanged. After the data cleaning, only six countries (Bahrain, Egypt, Kuwait, Oman, Turkey, and the United Arab Emirates) were able to participate in the analysis.The result showed that Egypt, Turkey and Kuwait were the best ones respectively. Thus, it was concluded that this “CAELS 100” methodology is suitable for evaluating Islamic banking systems. AcknowledgmentThe research was supported by the project “Intelligent specialization program at Kaposvár University”, No. EFOP-3.6.1-16-2016-00007.
Journal Article
Performance des banques islamiques vs banques conventionnelles : quelles exigences en matière de fonds propres réglementaires ?
Cet article compare les effets de divers ratios de fonds propres réglementaires fondés ou non sur la pondération des actifs par le risque sur la profitabilité et l’efficience de banques à la fois islamiques et conventionnelles. Pour ce faire, un échantillon composé de 656 banques de 1999 à 2013 est mobilisé. Les résultats indiquent que les ratios de fonds propres améliorent la profitabilité et l’efficience des deux modèles de banques. De plus, les ratios de fonds propres ont un effet plus favorable sur la performance des banques islamiques qui relèvent de la réglementation proposée par le Conseil des services financiers islamiques (IFSB) que de celles qui dépendent du Comité de Bâle sur le contrôle bancaire.Classification JEL : G21, G28, P43, P47. Performance of Islamic banks vs. conventional banks: how effective are regulatory capital ratios?This paper examines the effects of various types of bank regulatory capital on the profitability and the efficiency of conventional and Islamic banks. Using a sample of 656 banks from 1999 to 2013, we find that regulatory capital is positively associated with the efficiency and the profitability of the two bank types, although the results are stronger for conventional banks. The findings also suggest that Islamic Financial Services Board (IFSB) capital guidelines are more effective in improving the performance of Islamic banks than Basel Committee on Banking and Supervision (BCBS) capital guidelines.
Journal Article
Capital Adequacy for Islamic Banks
This chapter discusses capital adequacy in Islamic banking. The fundamental principle that capital is the currency of risk and that adequate capital protects against distress applies equally to all banks. Therefore, the implementation of Basel II is as critical to Islamic banks as it is to their conventional counterparts. With necessary adjustments, the Pillars of Basel II could be applicable to Islamic banks. The chapter provides a brief review of the Basel II Accord and is hence largely based on documents issued by the Basel Committee on Banking Supervision. A brief summary of the original Basel I Accord is presented, highlighting the major limitations of the first Accord. The chapter also presents a summary of the Pillars of Basel II and the forthcoming Basel III standards and their applicability for Islamic financial institutions. The Islamic Financial Services Board has issued capital adequacy standards for the Islamic financial industry.
Book Chapter
Corporate and Sharī‘ah Governance of Islamic Banks
This chapter discusses corporate governance, its importance to the banking sector, and some of its challenges relating to the economic and financial crisis of 2007. It looks back in history at the hisba system and juxtaposes the OECD and Islamic principles of corporate governance. Sharī‘ah compliance is identified as one of the key outstanding needs of Islamic banks not addressed by corporate governance codes and principles issued by organizations like the OECD; thus, an adapted corporate governance understanding is presented along with guidance on the topic by the Islamic Financial Services Board (IFSB) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). The chapter also defines sharī‘ah risk as well as sharī‘ah governance and proposes a comprehensive model for sharī‘ah governance of Islamic banks. Finally, the chapter closes by discussing the sharī‘ah compliance‐related responsibilities of the Board of Directors (BOD) and management.
Book Chapter
Auditing and Governance for Takaful Operators
This chapter introduces the prevailing auditing and governance guidelines and standards issued by the Accounting and Auditing Organizations of Islamic Financial Institutions (AAOIFI), the Islamic Financial Services Board (IFSB), and Bank Negara Malaysia (BNM). BNM has issued two main auditing guidelines. They are related to the appointment of external auditors and an audit committee and internal audit department. Prudential Financial Policy Department from BNM issued a guideline for “Appointment of External Auditors.” There are three key phases in implementing a Shariah audit exercise. Although these three stages—planning, execution, and reporting—are common to all audits, some audit exercises, particularly those involving external auditors, include another important stage, known as the engagement process. This is the process through which auditors find prospective clients and organizations find prospective auditors. Governance standards issued by the AAOIFI standards are related to the Shariah supervisory board, its appointment, composition, and reporting. In addition, standards regarding Shariah review and internal Shariah review, audit and governance committee, independence of the Shariah supervisory board, statement on governance principles, and corporate social responsibility conduct and disclosure for Islamic financial institutions are further discussed in the chapter.
Book Chapter
The Regulatory Framework of Islamic Banks
This chapter contains sections titled:
Background
The Capital Adequacy Standard (CAS)
The Definition and Role of Capital
Determination of Risk Weights
Credit Risk
Minimum Capital Requirements for Islamic Financing Assets
Recommendations
Book Chapter
The Importance and Role of Capital‐Literature Review
This chapter contains sections titled:
Definition, Functions, and Importance of Capital
History of Capital Adequacy Regulations
The Need for Banking Regulations and Supervision
Summary
Book Chapter