Aveneu Park, Starling, Australia

This to assess the likelihood of a

This study will assess whether Islamic
banks are more sustainable than conventional banks. To begin with, it will
involve examining factors such as return on assets, leverage and assets and
analyse the z-score. I will compare five conventional banks with five Islamic
banks. Qualitative and quantitative data will be used. Data can be extracted
from banks’ balance sheets which are available through their corporate
websites. I will extract data to calculate return on assets and leverage
between 2005 and 2016. The selection of Islamic banks will be made from banks
operating in the UK.

I will use the z-score to assess the
stability of banks. The z-score is used to assess the likelihood of a bank’s
insolvency which occurs when debt value is higher than the assets of the bank.
I will use the following equation:

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(C?ihák & Hesse,  2008).

k-is the equity capital of each bank. This
is expressed as a percentage of total assets.

m-is the return of assets as expressed as a
percentage.

s-is the standard deviation of the return of
investment.

The z-score will link a bank’s capital with
its return on assets and the measure of volatility of returns. A high z-score
will imply a more stable bank. This measure is an objective measure that can be
used to compare and contrast conventional and Islamic banks. Further, the
z-score is not impacted by the specific activities of each bank (Li, Tripe
& Malone,2017) so it is more likely to be accurate and not skewered by
external variables. However, I will be mindful that the z-score is not without
its limitations. For example, it focuses on the book value of capital and any
reserves and therefore may undervalue the financial robustness of Islamic banks
(Li, Tripe & Malone, 2017).

Leverage will be calculated as total
liabilities divided by total equity. The lower the result, the more likely that
a financial institution will be financially safe over the long-term. Return on
assets looks at profitability and will be calculated by reference to net income
divided by total assets. Return on assets acts as a measure of how much bank
generates from held assets. A high return on assets indicates that a bank can
generate more profit from the assets it holds (Heikal, Khaddafi & Ummah, 2014).

Finally, I will perform regression analysis
on this data with the z-score as the dependent variable using a statistical
package. I acknowledge limitations at present with knowledge of the various
packages available but intend to overcome those through tutorials and practice.

I
have picked the 2005-2016 time period as this will allow me to make observations
of pre and post Financial Crisis in 2008. This is important to ascertain if the
principle of sustainable banking has been affected across both banking types.

Reflections

In my opinion, it will be important to
assess the value of the literature used in the study. For example, some
commentators opine that the economic and financial theories of Islamic banking
are under-developed (Siddiqi, 2006) and care must be taken to ensure that
studies include real data as opposed to normative theories only. Further,
studies that show that the Islamic banks perform better than conventional banks
are old studies and therefore conclusions should be analysed to ensure they
apply to today’s banking system.

The study will try to destroy the myth that
Islamic Banks are only for Muslims. The point that should be noted is that
large Islamic banks are located in the United Kingdom, the United Arab Emirates
and Malaysia and the share of non-Muslims among their clients reaches up to 70%
(Gordon Haskins, 2017).  Thus, religion
is not the reason for using Islamic banking products.

This study will avail of public data and no
primary data collection will take place. Thus, the risk level is relatively
low. However, it is important to ensure that the selection of secondary data is
selected in a way which reduces the likelihood of bias. I accept that some data
will be published which is not uniform across banks. I therefore have factored
time in to ensure that I can reduce data to a consistent form.

It is important to note that the timeline
for the research will be closely monitored. Also, I want to ensure that I have
a significant amount of time for data analysis as this is an area that I need
to develop. I will not select studies that serve to prove a pre-defined
conclusion. I will not use any personal or religious opinions. I will examine
data from an objective standpoint and step back from the data to detect
patterns and trends. I will be alert to the ongoing risk of introducing bias
into the study.

In addition, the study is restricted to
banks in the UK. Therefore, the external validity of the study may be limited.
However, while this may be construed as a shortcoming, I believe that
concentrating on this one market is imperative given the dearth of research in
this country.

 

 

 

 

 This study will assess whether Islamic
banks are more sustainable than conventional banks. To begin with, it will
involve examining factors such as return on assets, leverage and assets and
analyse the z-score. I will compare five conventional banks with five Islamic
banks. Qualitative and quantitative data will be used. Data can be extracted
from banks’ balance sheets which are available through their corporate
websites. I will extract data to calculate return on assets and leverage
between 2005 and 2016. The selection of Islamic banks will be made from banks
operating in the UK.

I will use the z-score to assess the
stability of banks. The z-score is used to assess the likelihood of a bank’s
insolvency which occurs when debt value is higher than the assets of the bank.
I will use the following equation:

(C?ihák & Hesse,  2008).

k-is the equity capital of each bank. This
is expressed as a percentage of total assets.

m-is the return of assets as expressed as a
percentage.

s-is the standard deviation of the return of
investment.

The z-score will link a bank’s capital with
its return on assets and the measure of volatility of returns. A high z-score
will imply a more stable bank. This measure is an objective measure that can be
used to compare and contrast conventional and Islamic banks. Further, the
z-score is not impacted by the specific activities of each bank (Li, Tripe
& Malone,2017) so it is more likely to be accurate and not skewered by
external variables. However, I will be mindful that the z-score is not without
its limitations. For example, it focuses on the book value of capital and any
reserves and therefore may undervalue the financial robustness of Islamic banks
(Li, Tripe & Malone, 2017).

Leverage will be calculated as total
liabilities divided by total equity. The lower the result, the more likely that
a financial institution will be financially safe over the long-term. Return on
assets looks at profitability and will be calculated by reference to net income
divided by total assets. Return on assets acts as a measure of how much bank
generates from held assets. A high return on assets indicates that a bank can
generate more profit from the assets it holds (Heikal, Khaddafi & Ummah, 2014).

Finally, I will perform regression analysis
on this data with the z-score as the dependent variable using a statistical
package. I acknowledge limitations at present with knowledge of the various
packages available but intend to overcome those through tutorials and practice.

I
have picked the 2005-2016 time period as this will allow me to make observations
of pre and post Financial Crisis in 2008. This is important to ascertain if the
principle of sustainable banking has been affected across both banking types.

Reflections

In my opinion, it will be important to
assess the value of the literature used in the study. For example, some
commentators opine that the economic and financial theories of Islamic banking
are under-developed (Siddiqi, 2006) and care must be taken to ensure that
studies include real data as opposed to normative theories only. Further,
studies that show that the Islamic banks perform better than conventional banks
are old studies and therefore conclusions should be analysed to ensure they
apply to today’s banking system.

The study will try to destroy the myth that
Islamic Banks are only for Muslims. The point that should be noted is that
large Islamic banks are located in the United Kingdom, the United Arab Emirates
and Malaysia and the share of non-Muslims among their clients reaches up to 70%
(Gordon Haskins, 2017).  Thus, religion
is not the reason for using Islamic banking products.

This study will avail of public data and no
primary data collection will take place. Thus, the risk level is relatively
low. However, it is important to ensure that the selection of secondary data is
selected in a way which reduces the likelihood of bias. I accept that some data
will be published which is not uniform across banks. I therefore have factored
time in to ensure that I can reduce data to a consistent form.

It is important to note that the timeline
for the research will be closely monitored. Also, I want to ensure that I have
a significant amount of time for data analysis as this is an area that I need
to develop. I will not select studies that serve to prove a pre-defined
conclusion. I will not use any personal or religious opinions. I will examine
data from an objective standpoint and step back from the data to detect
patterns and trends. I will be alert to the ongoing risk of introducing bias
into the study.

In addition, the study is restricted to
banks in the UK. Therefore, the external validity of the study may be limited.
However, while this may be construed as a shortcoming, I believe that
concentrating on this one market is imperative given the dearth of research in
this country.

 

 

 

 

 

 

 

 

 

 

 

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