Success Factors of Islamic Banks: An Empirical Study2.2.2 Cost/Earning Efficiency
This is measured by the ratio of total expenses to total earning. As the
ratio decreases, so does the efficiency of every Dinar spent by the bank. The
Islamic bank can increase its profitability by increasing the efficiency of its
workforce, through constant training and injecting joy and happiness in the
work environment.
2.2.3 Selecting High Returns Investments
Investment selection is linked to risk management because, as it is
known, an increase in the expected return is normally linked to an increase in
investment risk. But it is to a large extent also linked to the bank size itself.
The financial sector is like a jungle where the fatter the prey the larger the
predator animal that is needed to devour it. The bank that enters the market
with huge capital is able to find higher return investments, in addition to it
being able to instill greater confidence in investors, thus making them to
come forward to it with their investments. It is not enough for the Islamic
bank to start with high investment; rather it should back such an investment
with a strategy for continuous growth, either through geographical coverage
or through the size of deposits and assets or through mergers or purchase of
other financial institutions.
2.2.4 Minimizing Idle Assets As Much As Possible
Every bank needs cash reserves. Some of these needs are compulsory
while others are required by the rules of banking prudence. But Islamic banks
are known of having higher cash reserves for reasons, part of which are
technical caused sometimes by the bank’s relations with the central bank,
others for purely administrative reasons. The Islamic bank can minimize idle
reserves by reconsidering its managerial philosophy, improving its style of
applying the rules of banking prudence and seizing the little opportunities
available to use its cash assets to increase income.
2.2.5 Utilization of Economies of Scale
This comes about by means of increasing invested assets, because an
increase in investment propels the multiplier of the ratio of profit-bearing
assets to equities towards profit maximization.