Monzer Kahfcould not sustain that big move and its profitability index stabilized around
1.1 per cent to 1.2 per cent over the three years. Also a look at the
profitability index of banks F, B, C, and to some extent, E and A, indicates a
weakness in their ability to improve profit rates.
Finally, Table 16 emphasizes the result we arrived at earlier: low turnover
in all these banks. While it is high turnover rate that is a major factor of profit
making in conventional banks.
It is perhaps useful to compare revenues, expenses and net profits indices
all together, in such a way as to facilitate an observation of the relationship
between them. This would assist the annual planning of the Islamic bank.
Figure 2 puts these three indices together side by side. Observing the
profitability index alongside the expenses and revenues indices helps
understand the phenomenon of chronic weakness of profit making in banks.
It is such an important matter in management that Islamic banks should be in
constant alert to avoid it. Chronic weaknesses of profit making are
characterized by an increase in spending, stagnancy of revenues, slowness in
introducing any substantial managerial change, and modality of conducting
their affairs pertaining to relations with customers as well as investment
policies.
It is noticeable from Figure 2 that there are differences between Islamic
banks in concurrence of investment profitability index with the index of their
revenues. While bank D achieved the highest revenue index, it was not the
bank with the highest profit on investment; just like bank F which was able to
squeeze spending but did not make high profit on investment despite
attaining a high rate in the revenue index. Also, bank G achieved the highest
profitability on investment while its achievement in the areas of expenses and
earnings was modest. The reason for this disparity is found in the differences
of pricing of services offered by Islamic banks to owners of all kinds of
investment deposits and the differences in the ratio of non-investible parts of
deposits. These prices belong to the realm of distribution in the Islamic banks
and do not appear in Figure 2.