Monzer KahfBefore concluding this sub-section we need to look at the components of
these deposits. Clients’ deposits are either demand (current) accounts,
unrestricted short-term investment accounts of 3-6 months, medium-term, 1
year and above, or restricted/special investment accounts. The last type of
accounts mostly operate on the basis of agency or hired manager, such that
the bank gets a price of its services regardless of the result achieved to the
deposit owner. Since returns of investment on current deposits are assigned
to shareholders, not to depositors (because these accounts are guaranteed),
their impact on shareholders’ profit is direct and on a one to one basis. On
the other hand, since Islamic banks usually service these accounts free of
charge (even though some of them have started to charge monthly service
fees), it very important to minimize the cost of these services or at least make
it within the limit of their expected return.
Table 7 depicts the growth in current accounts in only 5 banks because
one of the banks did not show the volume of its current account deposits in
its annual report and the other is an off shore bank, it does not provide
current account services.
Table 7: Percentage of Growth in Current Account
BANK 1998/1999 1999/2000 2000/2001 1998/2001 Average
A 2.42 24.29 16.06 47.73 15.91
B 3.88 63.55 -14.29 45.63 15.91
C 11.55 16.56 14.91 49.41 16.47
D --- --- --- --- ---
E -14.57 2.84 2.77 -9.72 -3.42
F --- 36.50 -10.05 22.78 11.39
G --- --- --- --- ---
Average 0.82 28.75 1.88 31.17 11.15Three banks were able to increase their current account deposits by
almost 50 per cent over three years. But this increase was accompanied by an
even higher increase in the total deposits of bank C, while the growth rate of
current account surpassed the rate of increase in total deposits in banks A
and B. This shows the importance of marketing current account services as a
means of getting other deposits that would enable the Islamic bank to
improve shareholders’ profitability. We have pointed out that to a large extent
this depends on improving customer relations. It striking that throughout
2000 and 2001 bank E has maintained a modest growth in its current deposits
that are significantly lower than the growth of its total deposits.