Islamic Banking and Finance: Fundamentals and Contemporary Issues

Success Factors of Islamic Banks: An Empirical Study

Table 15: Percent of Expenses to Revenues

BANK 1998 1999 2000 2001 Avg. 98/99 99/00 00/01 98/01

A 36.04 41.10 33.33 35.24 36.43 14.04 -18.91 5.71 -2.23

B 22.11 26.37 25.42 35.00 27.23 19.31 -3.60 37.67 58.33

C 46.62 29.97 21.83 26.14 31.14 -35.72 -27.17 19.76 -43.93

D 14.68 13.93 11.68 14.88 13.79 -5.07 -16.19 27.44 1.40

E 35.87 34.30 44.91 50.11 41. 30 -4.40 30.95 11.57 39.67

F --- 15.06 16.44 19.31 16.94 --- 9.20 17.43 28.22

G 23.41 21.25 19.29 21.09 21.26 -9.21 -9.23 9.32 -9.91

Average 28.79 26.00 24.70 28.82 26.87 -3.51 -4.99 18.41 10.22

3.5 Changes in Net Profits

In this sub-section we shall focus on the profitability of the Islamic bank
by studying the changes in net profits, the profit to invested assets index and
the ratio of profit to shareholders’ equity taking the rate of equity growth into
account. For a meaningful comparison we have taken profits figures before
reserves and tax because our focus is on the achievement of the bank’s
management itself, though analysis of after tax profit is also possible.

Table 16: Net Profit/Invested Assets

BANK 1998 1999 2000 2001 Avg. 99/98 00/99 01/00 98/01

A 0.91 3.44 0.53 1.55 1.61 278.55 -84.55 190.74 70.03

B 1.01 1.21 1.27 1.54 1.26 19.11 5.54 20.47 51.44

C -0.51 1.20 1.13 1.12 0.74 335.76 -5.94 -0.31 -6.23

D 2.33 2.25 2.26 1.70 2.13 -3.27 0.23 -24.83 -27.12

E 1.92 1.64 1.10 1.79 1.61 -14.87 -32.51 62.10 -6.87

F ---- 0.42 0.24 0.55 0.40 ---- -43.55 132.87 31.46

G 2.80 2.80 2.60 2.31 2.63 0.01 -7.03 -11.06 -17.30

Average 1.41 1.85 1.30 1.51 1.48 102.55 -23.97 52.85 13.63

Table 16 shows the index of net profits to invested assets. From this
table it is observed that two Islamic banks were able to realize profits of more
than 2 per cent on their invested assets. A third bank also exceeded the
average profitability of the seven banks while three of them hovered around
the average, leaving two other banks at positions far below the average.

We should however note the effect of the drastic change that took place
in the management concepts, style and approaches to investment and to
customer relation that took place in bank C. This made this bank move from
low profitability, or loss, to a higher level in one year, 1999. But the bank