Factors Influencing the Profitability of Conventional and Islamic Commercial Banks in GCC Countries

Fators Influening the Profitability of conventional and Islami commerial Banks in Gcc countries Samir Abderrazek Srairi 

Abstrat: Thi pape examie the impat  bak haateiti, maemi idiat ad iaial tutue  the pitability  etial ad Ilami mmeial bak peatig i the Gul cpeati cuil (Gcc) utie  the peid 1999–2006. Empiial eult h that the pitability  bth etial ad Ilami bak i aeted maily by thee aiable: apital adequay, edit ik (ith dieet ig) ad peatial eiiey. futheme, the liquidity ati ad iaial ik hae ly a pitie impat  Ilami bak’ pitability. we al ud that all maemi detemiat, ith the exepti  ilati ate, ae pitiely igiiat i explaiig pit. fially, a  the eet  iaial tutue  etu  aeage aet (roAA), the empiial etimati im the mplemetaitie betee bak ad equity  maket i Gcc utie. I the ae  etial bak, etati i auable t bakig et pemae. Hee, Hee, thee i  eidee idiatig a elatihip betee bakig deelpmet ad pitability. 21, C 23 23, O   53, P 43 43.  JEL Classification: G 21

I. Introdution The emie  the Gul cpeati cuil (Gcc) utie (Bahai, Kuait, oma, Qata, saudi Aabia ad the Uited Aab Emiate) hae iteed a bm i the lat ie yea a a equee  ed-high il

Samir Abderrazek Srairi , Aitat Pe 

fiae,, riyadh cmmuity cllege, fiae

Kig saud Uieity , Kigdm  saudi Aabia. international tional association for isl amic eco nomics © 2009, interna Review of Islamic Economics , vl. 13, n. 1, 2009, pp. 5–30.

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Review of Islamic Economics, v. 13, n. 1, 2009

pie ad ieaed idee i the egi’ utue. The Gcc eie ae i a eatiey tg piti a paed t te yea ag ad they hae etiey hw gwth ate uh abe the wd aeage. I at, the Gcc bakig et wa a ai beeiiay  the ey auabe ei eiet. Ideed, duig the peid 2001–2006, the tta aet  bak, whih auted t Us $310 bii i 2001, hae e tha dubed t eah e $650 bii i 2006. I te  pitabiity, pitabii ty, etu  equity (roE)  etia ad Iai bak aeaged at 14.5% i 2001, ad e apidy t 22% i 2006.1 Depite thi but gwth, eia bak i Gcc utie ae aed with ueu hage that th at ud ipat thei pitabiity, pitabi ity, ideed thei exitee. Thee hage iude the et’ deiig expue t the geet, the peig up  etai aket t eig petiti, the expai  the piate et ad the ieae  edig, patiuay  pea edig, ad, iay, the apid gwth  Iai bakig. I the at tw deade, Iai bak hae gw i ize ad ube aud the wd, epeiay i Gcc utie ad i suth Aia. Adig Adig t the Iai Deepet Bad web ite, thee wee i 2006 abut 400 bak ieed a Iai bak peatig i e tha 70 utie wdwide. mee, with the ted twad Iai iaig gwig apidy, t etia bak i the Gcc utie ae w eig Iai pdut ad ae wity gaiig aket hae i the Iai bakig aea. The ea  thi thut it etai Iai bakig i ute dead, whih i e iied t Iai pdut a pped t etia e. Iai bak hae eea ditiguihig eatue (Ai, 2007; o ad Zubi, 2008; chg ad liu, 2008). The it piipe i the phibiti  iteet (rib  (rib a) egade  it   ue. Hee, Iai bak ae t awed t e  ix a ate  etu  depit ad ae t awed t hage iteet  a. The ept  iteet i epaed by the pitad- haig (Pls) paadig. Ude the Pls paadig, the aet ad iabiitie  Iai bak ae itegated i the ee that bwe hae pit ad e with the bak, whih i tu hae pit ad e with the depit. A ed piipe  Iai bakig i that it aid ietig i ay ei atiity that i t ideed t be  g-te iteet t iety (e.g  (e.g . gabig, pduti ad ae  iqu). Theee, Theee, a Iai bak wi t egage i iaig atiitie that ae ideed uequiay uawu (har am)  mui. fiay, the thid piipe i that ay tat  ay iaia eie ut hae up t a dage

Review of Islamic Economics, v. 13, n. 1, 2009

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pre-aued r deared. I Iai tratig, gharar (uertaiy ad rik) i t peritted. Gabig ad deriate uh a uture ad pti, therere, are idered u-Iai prdut. I ie  the rapid grth  the e r  bakig, eera reet reearhe hae exaied ad pared perrae betee Iai ad etia bak. fr exape, o ad Zubi (2008) pare etia ad Iai bak i the Gcc regi er the 2000–2005 perid, uig 26 iaia rati. They argue that Iai bak are pritabe but e eiiet tha etia bak. Their reut idiate a that Iai bak are peratig ith greater rik beaue they aitai aer tigey reere r bad a-ike prdut. I trat, saad ad Haa (1999) ud that Bak Ia maayia Berhad i e riky pared t a grup  eight etia bak, beaue it ha re equity apita ad it ietet i geret euritie are uh arger tha the etia bak. Baed  the bakig yte i maayia, chg ad liu (2008) attepted t etabih hether Iai bakig i reay dieret r etia bakig. T thi ed, they pared Iai ietet rate ad etia depit rate  aig depit a e a tie depit  ariu aturitie, ragig r e t tee th. Their reut ugget that the Iai depit, i pratie, are t ery dieret r etia depit. They a h that y a egigibe prti  Iai bak iaig i trity Pls-baed ad that Iai depit are t iteret-ree, but are ey pegged t etia depit. Beide arryig  the pari betee Iai ad etia bak, the ai  thi tudy i t exaie the deteriat  eria bak’ pritabiity i Gcc utrie. we ited t aaye h a bak’ peii harateriti ad the era bakig eiret (arei idiatr ad iaia truture) aet the perrae  eria bak. The reearh ue pae data  Gcc bak that er the perid 1999–2006, ad utiize iear regrei etiated by three epiria de (ped rdiary eat quare, ixed eet de, ad rad eet de). Thi paper ake eera tributi. It i the irt tudy r the Gcc utrie that aaye the deteriat  bak’ pritabiity. It buid  Bahir ad Haa’ (2003) reearh hih exaied the atr iueig bak’ pritabiity y r Iai bak i ur utrie (Bahrai, Kuait, Qatar, UAE)  the Gcc regi. furtherre, e attept t be the irt t ditiguih betee etia ad Iai bak. Preiu tudie

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Review of Islamic Economics, vl. 13, n. 1, 2009

(Haa ad saad, 2003; ol ad Zubi, 2008) that exaie etial ad Ilai bak u  iaial harateriti that dieretiate thee tw grup  bak ad t  whether the iteral ad exteral deteriat  pritability ag etial ad Ilai bak are dieret. Al, thi reearh ue data r a iprtat uber  etial ad Ilai bak (66 bak) ad a re reet tie-rae by exaiig the perid 1999-2006. fially, we exaie a ariety  ariable by itrduig iteral ad exteral atr that ay be iprtat i explaiig prit. The grup  iteral harateriti  bak ile apital adequay, liquidity, aet quality, iaial rik, peratial eiiey ad ize. The ed grup   exteral atr ilude arei ariable (ilati, grwth  GDP ad ey upply) ad iaial truture (bakig etr deelpet, iaial arket deelpet, ad etrati). The reaider  the paper i rgaized a llw: seti 2 pride a brie reiew  the related literature. The Gcc eie ad bakig etr are deribed i seti 3. seti 4 preet the data, ariable ad epirial ethdlgy ued i the tudy. seti 5 deribe the data ad diue the reult. The ial eti i a lui. II. Literature Review 

The deteriat  bak’ pritability hae lg bee a ajr u  bakig reearh i ay utrie arud the wrld. The literature laiie the deteriat  pritability a iteral ad exteral. Iteral deteriat er bak’ peii harateriti ad ilude eaure like bak ize, aet quality, apital rati, liquidity ad peratial eiiey. Exteral deteriat are t related t bak aageet, but relet iaial idutry (etrati, iaial arket deelpet, ad bakig etr deelpet) ad arei eiret uh a ilati rate, iteret rate ad grwth rate i GDP. The lik betwee bak’ pritability ad iteral ad exteral atr ha bee ietigated epirially by ea   r-utry regrei, tie erie aalyi ad pael tudie r a utry  ae tudie. The reearh udertake ha applied ariu ethd, iludig paraetri (thati rtier apprah: SFA, ditributi ree apprah: DFA, thik rtier apprah: TFA) ad -paraetri apprahe (data eelpet aalyi: DEA, ree dipal hull: FDH ). I thi eti, we will u  tudie that exaie the Arab bakig yte (Bahir ad Haa, 2003; maghyereh ad shaut, 2004; Be naeur ad Gaid, 2006; srairi, 2008), but al  reet reearh

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(staikoura ad wood, 2003; Koidou ad Paioura, 2007; Athaaoglou et al . 2008) that aalye the effect of bak-pecific, idutry-pecific ad acroecooic deteriat o bak profitability. The epirical reult of thee tudie ary igificatly becaue, acro coutrie, coercial bak hae to deal ith differet acroecooic eiroet, differet explicit ad iplicit tax policie, depoit iurace regie, fiacial arket coditio ad legal ad ititutioal realitie (Derirguc-Kut ad Huiziga, 1999). Hoeer there exit oe coo eleet that e ill try to aalye i thi paper. sigle-coutry tudie ietigate the deteriat of coercial bak perforace i a particular coutry. maghyerech ad shaout ( 2004), for itace, tudy the deteriat of coercial bak’ perforace i Jorda durig the period 1990–2000. They fid a poitie ad igificat relatiohip betee ize, capital adequacy, credit rik (et credit facilitie/ total aet), liquidity, groth rate i real GDP ad bak profitability. The reult alo idicate a egatie aociatio betee the retur o equity ad oerhead ratio (geeral ad adiitratie expee/total aet), iteret rate ad bakig deelopet (credit to priate ector/GDP ). I other igle-coutry tudie, Be Be naceur ad Goaied (2006) aalye the ipact of bak’ characteritic, fiacial tructure ad acroecooic idicator o bak’ et iteret argi ad profitability i the Tuiia bakig idutry for the period 1980-2000. They cocluded that high et iteret argi ad profitability are aociated poitiely ith bak that hold a relatiely high aout of capital ad ith large oerhead, ad egatiely ith the ize. They fid alo that acroecooic idicator (i.e. iflatio, GDP ), ad arket cocetratio ratio hae o ipact o bak’ iteret argi ad profitability. Hoeer, fiacial tructure ariable (tock arket capitalizatio diided by total aet or GDP ) do hae a poitie effect o the retur o aet. A ore recet tudy i thi type of  reearch i the ietigatio carried out by maood et al. (2009) to idetify  the deteriat of saudi coercial bak’ profitability for the period 1999–2007. The reult reealed that i cae of calculatig profitability i ter of  ROE  or ROA the ot igificat iteral ad exteral factor affectig saudi bak are capital adequacy ratio, earig aet to depoit ratio, operatioal efficiecy, groth rate i GDP , ad bakig ector deelopet. He fid alo that ariable to do ith credit rik, iflatio rate ad iterbak offered rate are iigificat ad hae a lo effect o all idicator of profitability.

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Review of Islamic Economics, vl. 13, n. 1, 2009

The ed gup  tudie exaie a pael  utie, ad ide bak pitability a a uti  iteal ad exteal deteiat. Bahi ad Haa (2003) tudy the at ilueig the pitability   Ilai bak i eight middle Eate utie  the peid 1993–1998. They id that the highe leeage ad lage la-t-aet ati lead t highe pitability. Thi tudy al idiate a pitie elatihip betee aei aiable, tk aket deelpet ad pitability   bak. staikua ad wd (2003) aalye the peae  a aple   bak peatig i 13 Eupea utie. The idig  thi tudy eealed that la-t0-aet ati ad the ppti  la l pii ae ieely elated t bak’ etu  aet, a ell a that bak ith the geate leel  equity ae elatiely e pitable. o the the had, aei idiat (aiability  iteet ate, gth  GDP ) had a egatie ipat  pitability. reetly, uig a liea del, Kidu ad Paiua (2007) exaie h a bak’ peii haateiti ad the eall bakig eiet aet the pitability  eial deti ad eig bak peatig i the 15 EU utie e the peid 1995– 2001. I bie, u iptat eult huld be ephaized. fit, the apital tegth (equity t ttal aet) ad the eiiey i expee aageet (t t ie) ae the ai deteiat  pitability eaued by  ROAA. sed, the ati et la t ute ad ht-te udig i tatitially igiiat ad pitiely elated t the pitability  deti bak, idiatig a egatie elatihip betee bak pitability ad the leel  liquid aet held by the bak. I the ae  eig bak, thi ati i al igiiat but ha a egatie ig, idiatig a pitie elatihip betee liquidity ad bak’ pit. Thid, the auth id  eidee t uppt the tutue–dut–peae (SCP ) hypthei. fially, the eult idiated that aei diti (ilati, gth   GDP ) ad iaial aket tutue (tk aket apitalizati t ttal aet  t GDP , ttal aet t GDP ) ae tatitially igiiat ad elated t bth deti ad eig bak pitability. III. ovrviw f th Gcc enmi and Banking str 3.1.

enmi dvlpmnt and grwth in th Gcc The Gcc eie hae a ube   eatue. Thee utie ae haateized by lage il-pduig et, depedey  il expt, table ueie ad table pie leel (Al-muhaui et al . 2006).

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tabl 1: Aggrga eoomi Idiaor of h Gcc ouri ( 2006)

coury 

Bahrai Kuwait oa Qatar saudi A. UAE Ttal r Aerage

Moy  supply  (M2) (millio $)

Avrag iflaio (%)

0.749

15823

2.2

10734

21123

13.35

6.54

3.483

98717

3.1

55062

31014

43.71

6.28

2.546

35729

3.2

11569

14032

12.11

6.78

52722

24357

62914

10.34

143672

14733

107419

38613

30.56 27.35 22.01

352813

30405

27.2

7.27

Populaio (Millio)

0.838 23.697 4.229

345138 163293

11.8 2.3 9.3

35.242

711425

5.4

nomial GDP Pr capia ($)

curr Aou Bala (% of  GDP)

nomial GDP (millio $)

Ral GDP growh (%)

4.29 9.38

Source : Iteratial metary fud, Gcc cetral Bak, Arab metary fud Databae.

oer the pat deade, ad epeially ie 2002, the Gcc eie hae bee i a relatiely trg piti ad tiue t beeit r the utaied rally i il prie (il reeue tripled betwee 2002 ad 2005, riig r 25%   GDP t 38%), a well a r the healthy perrae  the -il etr (8% grwth betwee 2002 ad 2005 i real ter). nial GDP , Us $ 349 billi i 2002, ha re tha dubled t $ 711 billi i 2006 (Table 1). I real ter, ei grwth aeraged a lid 7.4%2 a year durig the perid 2002–2006 (7.27% i 2006). Pitie real grwth i 2006 wa iible i eery e  the ix Gcc utrie, althugh it raged widely r 4.29% i saudi Arabia t 10.34% i Qatar. Ilati al ha reaied ubdued durig t  the perid; hweer, the all i the Us dllar ad the heatig-up  the Gcc eie i the later year hae igited ilatiary preure, epeially i Qatar ( 11.8% i 2006) ad i the UEA ( 9.3%). Ipreie ei grwth ha al lited the regi’ per apita ie depite trg ppulati grwth. 3 Per apita GDP  ireaed r $10939 i 2002 t $30405 i 2006, grwig at a 15% aerage a year. Qatar with a per apita ie equal at $ 62914 ar exeeded the aerage. meawhile, oa’ GDP per head wa the lwet at $14032 i 2006. The rapid expai  the Gcc eie i apaied by ther pitie ei idiatr. Thee ilude rerd urplue i atial budget ad rerd urret aut urplue. fr exaple, the urret aut balae r the Gcc, whih wa $25 billi i 2002 r 7%  GDP , re

12

Review of Islamic Economics, vl. 13, n. 1, 2009

re tha eight tie i 2006 t reah $204 billi r 29%  the lletie GDP . mreer, a large part  the il widall ha bee ued t repay publi debt. Ideed, the bied publi debt  Gcc utrie drpped r 64% t 18%   GDP betwee 2002 ad 2006. saudi Arabia aw the larget delie, haig paid dw Us$85 billi i debt. o ather pitie te, the il widall ad grwth i geret pedig 4 hae built igiiat etu i the buie etr. Ulike preiu il b, thi e ha bee apaied by arig priate ietet. Ideed, the priate etr ha ieted e $120 billi ie 2003 i abut 500 prjet, ad at leat three tie re i i the pipelie. 5 The iaial erie, traprt ad trage, uiati, truti ad auaturig etr hae all rerded duble-digit grwth ie 2003, haig beeited r the bulk  the priate ietet. fially, the preet il b appear t be re utaied ad iderably better aaged that the irt e i the 1970 ad early  1980: le ey i wated, prjet are re targeted, ad re reere are built up ad aaged i re phitiated ad dieriied way (Hertg, 2007). All thi augur well r table ad utaied ei expai, ipreet i publi erie ad the yteati real   iratrutural bttleek. 3.2.

the Gcc banking seor The Gcc bakig idutry ha eeral uture that ake it uique ad dieret r ther regi (Al-maharrai et al. 2006; ol ad Zubi, 2008): irt, the etr i largely depedet  il etr atiitie ad prteted r reig petiti. sed, the bakig idutry’ ai ledig atiitie are etrated i truti, real tate ad uer la. Third, the publi etr tiue t hae a priet rle i the bakig etr  the Gcc utrie. furth, Gcc bak are till all pared t the big iteratial bak, the apital  all 50 Gcc bak ($31.5 billi) i iderably le tha that  e bak i e utrie (r exaple, the Hg Kg shaghai Bakig crprati, whe apital i equal at $35 billi). Bth etial iaial itituti ad Ilai bak hae bee expadig rapidly i the Gcc i reet year. seeral reet artile (e.g. Ila, 2003; Eayyad ad madai, 2003) hwed that erial bak are well apitalized ad hae adpted der bakig erie. mt bak are haraterized by atiatry aet quality, apital adequay ad a high leel  pritability.

Review of Islamic Economics, v. 13, n. 1, 2009

13

Tabe 2 hw that the tta aet  the 79 Gcc etia ad Iai bak ireaed r $310 bii i 2001 t $651 bii i 2006. Thi repreet re tha 97%  tta Gcc GDP . Thi rati arie r 146% i Bahrai t a w a 33% i oa. The w aet-t-GDP rati i a uber  Gcc utrie6 a be attributed t the exitee  a ira ey that de t hae ae t ra iaig, reetig a patter y ee i deepig utrie. meawhie, depit at Gcc bak auted t re tha $400 bii i 2006, the equiaet   56.3%  the bied GDP  the ix eber utrie. Thi rati arie widey ag Gcc utrie, r a high a 79%   GDP i the UAE t a w a 34%   GDP i oa. likewie, the rati a t GDP i ti w i the Gcc utrie (equa t at 59%  GDP ). oa ha the wet rati (33%), whie Bahrai ha the highet, with it a t GDP rati reahig 81% i 2006. The w a t GDP ad depit t GDP rati idiate ape r r Gcc bakig etr grwth. tabl 2: Gcc Banking Mark siz and Prfrman ( 2006) A  GDP (%)

8

52055

98.7

31162

11

229623

66.4

169353

21

234216

144

129111

Lan  GDP (%) 80.5 64.2 32.7 59.1 49.1 79.1

79

651056

97.05

417413

60.78

cunry

Bank

A (B$)

Bahrain Kuwai oman Qaar saudi A. UAe

25

23092

146

12744

9

93346

94.5

63346

5

18724

32.7

11697

tal r avrag

Lan (B$)

Dpi (B$)

Dpi  GDP (%)

Roe (%)

RoA (%)

12002

75.8

19.2

1.6

57760

58.5

21.3

2.9

12014

33.6

18.2

2.5

32775

62.2

21

2.9

157669

45.7

30.1

3.9

128287

78.6

18.6

2.4

400507

59.06

21.4

2.7

Source : Gcc cetra Bak, Arab metary fud Databae, Ititute  Bakig studie, Kuwait.

I ter  arket hare, the aet  the UAE auted t $ 234 bii i 2006, repreetig 36%  tta Gu bak’ aet, wed by  saudi bak with abut $230 bii i aet, r 35%  tta aet  a Gcc bak. siiary, saudi bak attrated $ 157 bii i depit, the equiaet  abut 40%  tta depit i Gu bak, whie the UAE ad Kuwait were i ed ad third pae with 32% ad 14.5%, repetiey. The aet bakig arket ag the Gcc utrie i the oai bakig arket; it ize auted t $ 18.7 bii ad $12 bii i ter  aet ad depit, repetiey.

Review of Islamic Economics, vl. 13, n. 1, 2009

14

Bakig pitability a be lked at thugh ROE  ad ROA. A hw i Table 2, saudi Aabia, Qata, Kuwait hae elatiely me pitable bakig et. retu  aet (ROA)  Gcc bak aeaged 2.7% i 2006, with saudi bak igiiatly highe at 3.9%, idiatig highe pitability elatie t the Gul bak. o the the had, etu  equity (ROE ) aied widely, with that  saudi bak aeagig at 30.1%. But eall, all Gcc bakig et pemed bette tha the tadad aeage   10% ROE ad 1% ROA. fially, the Gcc bakig et wa a mai beeiiay  the ey  auable emi eimet a balae heet expaded lidly ad ehaed pitability. neethele, depite thi but gwth mmeial bakig peetati ate ae till geeally lw i the Gcc. Additially, the ize  Gcc bakig i elatiely lw ad eetually thee bak will eed t gw exteally t take mpetit   ik bemig eay taget. IV. Daa and empirial Mhdlgy  4.1.

Daa The data  thi tudy mpie mmeial bak (etial ad Ilami) i Bahai, Kuwait, oma, Qata, saudi Aabia ad the Uited Aab Emiate. Depit-takig mpaie, tut bak, iae mpaie ad aig itituti ae exluded. cmmeial bak’ iaial tatemet data  itituti peatig i ix Gcc utie ae ued m the Bakspe Databae  Bueau va Dijk’ cmpay. ou ample i a balaed pael dataet   66 mmeial bak (48 cetial ad 18 Ilami) beed e the peid 1999–2006 itig   528 beati. Thee ae 384 beati  etial bak ad 144 beati  Ilami bak. Table 3 peet the umbe   etial ad Ilami bak by uty. tabl 3: Bank in sampl by cunry and typ cunry  Bahrain Kuwai oman Qaar saudi Arabia UAe tal

cnvninal Bank

Ilami Bank

tal numbr f bank

7

6

13

6

4

10

5

-

5

6

2

8

9

1

10

15

5

20

48

18

66

Review of Islamic Economics, vl. 13, n. 1, 2009

15

Thi tudy ha ued data  Bakpe beaue the iaial ad autig iati  bak i peeted i tadadized at, ate adjutet  dieee i autig ad eptig tadad. Additially, the etal bak i eah uty hae equied all bak (etial  Ilai) t llw iteatial autig tadad (IAs) i pepaig iaial tateet. Theee, paig data a thee utie huld t aue ay patiula pble. The a ad aket-peii data wee lleted  aual ept publihed by etal bak i eah Gcc uty ad  the ue uh a Iteatial metay fud (Imf) ad Aab metay  fud (Amf). 4.2. Determinants and variables

Table 4 pide a deipti  the aiable ued i thi eeah, ad al idiate thei likely ipat  eial bak pit. The pitability  aiable i epeeted by the etu  aeage aet (roAA). Thi ati i puted by diidig the et pit e aeage ttal aet. It elet the ability  a bak’ aageet t geeate pit  the bak’ aet. Aeage aet ae ued i de t aptue ay dieee that ued i aet duig the ial yea. 4.2.1. Bank

characteristics as profitability determinants  The iteal bak-peii haateiti that we ilude i u del epeet iati abut apital adequay, liquidity, aet quality (edit ik), iaial ik, peatial eiiey ad ize. Capital adequacy : we ue the ati  equity t aet (EQA) t pxy the apital adequay aiable. Bak with high apital ati wuld be ideed elatiely ae i the eet  l  liquidati, ad wuld ally hae lwe eed  exteal udig ad theee highe pitability. seeal tudie (Buke, 1989; Bege, 1995; Kidu ad Paiua, 2007) ud a pitie ad tgly igiiat elatihip betwee bak pitability ad apitalizati i ay utie. Liquidity : The ati  et la t depit ad ht-te udig i ued t eaue the elatihip betwee liquidity aageet ad peae. It al idiate the ik  t haig uiiet eee   ah t pe with withdawal  depit. I de t hedge agait liquidity  ik, bak te hld liquid aet t eet adie hk. Hee, the highe the alue  the ati, the le liquidity the bak ha, ad the highe will

16

Review of Islamic Economics, vl. 13, n. 1, 2009

be the pitability beaue liquid aet ae uually aiated with lwe ate  etu. citetly with thi aguet, mlyeux ad Tht (1992), ag the, ud a weak iee elatihip, wheea Buke (1989) ud a igiiat pitie aiati betwee liquidity ad bak pitability. maghyeeh ad shaut ( 2004) explai the litig idig by a dieet elatiity  dead  la i tw aple. Credit risk : t pxy thi aiable, we ue the la le l pii t ttal aet (NLA)7. Bak la ae the ai ue  eeue, but it al ideed a laget ue  edit ik. They ugget that ieaed expue t edit ik i ally aiated with deeaed pitability  ad, i bwe ae able t epay debt ad iteet, we a ay  the eidee that the highe thi ati (NLA) i, the highe the pitability   bak. Deigu-Kut ad Huiziga (1999) ad the eetly (Bahi ad Haa, 2003; maghyeeh ad shaut, 2004) ud a tg pitie elatihip betwee the ati  la t ttal aet ad bak pitability. Financial risk : I the abee  guaateed etu  depit, Ilai bak udetake iky peati i de t be able t geeate paable etu t thei ute. I thi tudy, we ue the ati  ttal liabilitie t ttal aet (LTA) a a pxy  thi ik. LTA i al a idiat  lwe apital  geate leeage. f Ilai bak, we expet a pitie elatihip betwee roAA ad thi ati. Hwee, i the abee  depit iuae, high ik-takig will expe the bak t the ik  iley. Theee the idiat (LTA) ay hae a egatie ipat  bak pitability. Bahi ad Haa (2003) hae ud a tg pitie aiati betwee the ati   ttal liabilitie t ttal aet ad pitability i eaued by the ati   bee tax pit t ttal aet. Operational efficiency : thi aiable i equal t ttal peatig expee iu pii  edit le diided by ttal peatig ie (coI8). It elet the bak aageet’ ability t tl peatig expee. The alle thi ati, the geate the peatial eiiey. Hee, the tt-ie ati i expeted t be egatiely elated t pitability. seeal ealie tudie (Paiua ad Kidu, 2007; Be naeu ad Kadil, 2008; mad et al . 2009) ied thi idig.

Review of Islamic Economics, v. 13, n. 1, 2009

17

tabl 4: Dscripio of Variabls Variabls

noaio

Dscripio

expcd effc

Depedet Pitabiity 

ROAA

The etu  aeage tta aet  the bak

Idepedet Bak-speii (itea at) capita Adequay 

EQA

Equity/tta Aet. High ati ae aued t be idiat  w iaia apita eeage ad hee w ik.

+

la/Depit ad ht-te udig. The highe thi ati the e iquid the bak wi be. net la/Tta Aet. The highe thi ati the e ik aued by bak.

+

LTA

Tta liabiitie/Tta Aet. The highe thi ati, the highe bak pitabiity.

+

opeatia Eiiey 

COI 

ct/Ie. Thi ati pide iati  the eiiey  the aageet egadig expee t the eeue it geeate. Highe ati idiate a e eiiet aageet.

size

TA

lg Tta Aet

liquidity  rati

LQR

cedit rik

NLA

fiaia rik

+/-

maei (extea at) (cPIt-cPIt- )/cPIt- . T pxy thi aiabe we Iati rate INF  ue the gwth  the cue Pie Idex :cPI rea G Deti (rGDPt-rGDPt- )/rGDPt- . GDP i a geea RGDP  Pdut idex  ei deepet Gwth Gwth rate (m2t-m2t- )/m2t- . m2=cuet i iuati  mey  M 2 + Piate dead depit i a uey  suppy  with bak + quai-etay depit. 1

1

1

1

+

1

+/-

+

1

+

fiaia Iduty  Bakig set Deepet

CPGDP 

fiaia maket Deepet

SMGDP 

cetati

CONC 

cedit t piate et/GDP. Thi aiabe i e tha a ipe eaue  bakig et ize, it a ued t eaue the iptae   bak iaig i the ey. stk maket capitaizati/GDP. Thi ati eaue the ea ee  deepet   the aket ad it iptae i iaig ey. Aet  the thee aget bak/tta Aet. The highe the etati ati, the e py pwe thee i i the bakig yte

+

+

?

18

Review of Islamic Economics, vo. 13, no. 1, 2009

Size : i ode to captue poibe o-iea eatiohip betee ize ad poitabiity (Boyd ad ruke, 1993), e ue the ogaith bak aet (TA) a a poxy o bak ize. Geeay, the bigge the ize o the bak the highe the poitabiity. The eao i that age ize ay eut i ecooie o cae that i educe the cot o gatheig ad poceig ioatio, o i ecooie o cope that eut i geate oa poduct dieiicatio ad acceibiity to capita aket hich ae ot aaiabe to a bak (siock, 1985). Hoee, o bak that becoe exteey age, the eect o ize coud be egatie due to bueaucatic ad othe eao. Ideed, oe tudie (Paioua ad Koidou, 2007; Be naceu ad Goaid, 2006) oud diecooie o age bak. 4.2.2. Macroeconomic profitability determinants 

To ioate the eect o bak chaacteitic o poitabiity, thee acoecooic aiabe ae ued: iatio ate, goth ate i ea GDP  ad goth ate o doetic iquidity. Inflation rate : e ue the pecetage chage i the coue pice idex (CPI ) to poxy thi aiabe. The ipact o iatio ate o bak poitabiity deped o hethe the iatio i aticipated. Pey ( 1992) agued that, i the iatio i aticipated, the bak ca appopiatey adjut iteet ate i ode to iceae thei eeue ate tha thei cot ad, coequety, the iatio ay hae a poitie ipact o poitabiity. mot tudie (Bouke, 1989; moyeux ad Thoto, 1992; Athaaogou et al . 2008) eached iia eut. Hoee, i the iatio i ot aticipated, the bak ay be o i adjutig thei iteet ate. Thi adeey aect bak peoace. Growth rate in real GDP : thi aiabe i expected to hae a poitie ipact o bak poitabiity. seea tudie (Ia, 1995; Ae ad nadikuaa, 1998; fitze, 2004) hoed that thee i a yteatic eatiohip betee iacia deeopet ad ecooic goth. Growth rate of money supply : moey uppy (M 2) coit o oey  i cicuatio (cuecy, ote ad coi, iued by ceta bak iu cuecy ith the bak) pu oetay depoit i oca cuecy at coecia bak pu quai-oetay depoit. like RGDP , thi idicato (M 2) i expected to hae a poitie eect o peoace. 4.2.3. Financial industry

profitability determinants  I additio to acoecooic aiabe, the peoace o bak i eated to the eatie deeopet o the bakig iduty ad the tock aket. we

Review of Islamic Economics, v. 13, n. 1, 2009

19

ider three extera deteriat: Bakig etr (CPGDP ), fiaia market Deepet (SMGDP ) ad Bak cetrati (CONC ). Banking sector development : CPGDP i the rati  the aue  redit by bak t the priate etr diided by GDP . Thi ariabe i ued a a prxy  r the bakig etr ize, ad i iteded t eaure the iprtae   bak iaig i the ey. CPGDP i expeted t ipat perrae pitiey (maghyereh ad shaut, 2004; mad et al . 2009). Financial market development : we ue the rati  tk arket apitaizati t GDP a a prxy r iaia arket deepet (SMGDP ). It a idiate the iprtae  the tk arket i iaig the ey. seera tudie ered etia (Be naeur ad Gaid, 2003; Kidu ad Paiura, 2007) r Iai bak (Bahir ad Haa, 2003) ud thi ariabe t be pitiey reated t bak perrae. Bank concentration: the t ai eaure  arket etrati that hae bee prped i the iterature are the etrati rati ( CRk ) ad the Heridah-Hirha Idex (HHI ). we ue the CRk , hih i auated by diidig the tta  the three arget bak i the arket ith the tta aet  a eria bak i the utry. The reati betee bakig arket truture ad bak perrae a g either pitie r egatie. startig ith the pitie ipat that etrati a hae  perrae, the reatie arket per (RMP ) hypthei ugget that y  bak ith arge arket hare ad e dieretiated prdut a exerie arket per ad ear -petitie prit (Berger, 1995). Ideed, arket per a bak t harge higher a rate ad er aer er depit rate thu ireaig the et iteret rate argi (Gddard et al . 2004). likeie, the X -eiiey hypthei i baed  the ie that a highy etrated arket ay reut r ireaed aageria ad ae eiiey. o the ther had, a highy etrated arket a hae a egatie ipat  bak pritabiity. wiia (2003) exaied the Autraia arket ad ud that etrati redue prit  the reig etrat ad at a a eetie barrier t etry. 4.3. Model formulation

T idetiy the itera ad extera atr that aet the pritabiity   bak i Gcc utrie durig the perid 1999-2006, e adapt the ig iear de. ROAAi,t  = α

+  β 1 X i,t  +  β 2Z t + εi,t 

( 1)

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20

where ROAAi,t  is the retur o aerage assets for bak i  i year t , α is a costat, X i,t  represets the ector of characteristics of bak i  i year t , Z t  represets the extera factors,  β  ad  β  are the ectors of regressio coefficiets, ad εi,t  = ui,t  + v i  is the disturbace term. 1

2

To estimate this mode, we use the fixed effect mode ( FEM ) ad radom effect mode (REM ). Usig fixed effect regressio, the bak specific effect (v i ) is take to be costat oer time ad the fuctioa form of oeway pae data mode is as foows: ROAAi,t  = ( α + v i  ) +  β  X i,t  +  β  Z t + ui,t  1

(2)

2

where ui,t ~ IID ( 0, σ  u); IID : idicates that errors are idepedet ideticay  distributed. 2

If v i  is cosidered as a error term, we use the radom effect mode, the the form of regressio mode is: ROAAi,t  = α +  β  X i,t  +  β  Z t + ui,t  + v i  1

(3)

2

where ui,t ~ IID ( 0, σ  u ) ad v i ~ IID ( 0, σ  v ). 2

2

FEM  is estimated usig the withi fixed effect, whereas REM  is estimated usig the feasibe geeraized east squares (GLS ). The fixed effect mode is tested by F test, whie radom effect is examied by the lagrage mutipier (LM ) test. If the u hypothesis of heteroscedastic residua ariace is ot rejected, the pooed ordiary east square (OLS ) regressio is faoured. I order to fid which of these modes (FEM, REM ) is the most appropriate, the Hausma specificatio test (H ) is coducted. V. empirical Rsults  5.1. Dscriptiv statistics

Before we aayse factors that ifuece baks’ profitabiity, it is usefu to commet o some preimiary features of our data. Tabe 5 presets descriptie statistics for the profitabiity measure (ROAA) ad the ariabes that describe itera ad extera factors used i our mode.

Review of Islamic Economics, v. 13, n. 1, 2009

21

table  5: Decripive saiic Variable name

Media

Miimum

Maximum

2.84

2.30

-11.88

35.10

3.13

EQA

19.67

13.69

2.95

100.00

17.88

lQr

75.00

68.99

4.37

936.94

58.18

coI

42.07

39.08

9.77

370.00

21.53

nlA

52.34

53.22

0.00

89.89

18.63

lTA

80.92

86.35

3.02

97.04

15.97

Inf

2.26

1.80

-1.28

11.83

2.77

rGDP

6.12

6.06

-1.60

17.30

3.47

m2

13.10

10.53

0.00

43.30

8.78

cPGDP

35.96

33.43

3.44

59.13

10.60

smGDP

93.24

89.70

22.40

206.10

45.72

conc

57.61

49.96

31.85

89.73

18.73

roAA

Mea

sd.Dev.

The uay tatiti hw,  exape, that the etu  aeage aet i eatiey high (with ea ad edia   2.84% ad 2.30%, epetiey). likewie, the ea  apita adequay ati i age ad aie geaty a bak (i =2.95%, ax = 100%). The iquidity ati i a ey high with ea 75% ad edia 69%. o the the had, Tabe 5 eea that the ea  aei aiabe i the Gcc utie uh a RGDP ad gwth ate  ey uppy (M 2) ae ey high, equa t 6.12% ad 13.1%, epetiey. Thi idiate that the Gcc eie ae i a eatiey tg piti a paed t te yea ag ad etiey  hae hw gwth ate uh abe the wd aeage. The iati ate duig the peid 1999-2006 i w (with ea 2.26% ad edia 1.8%); hwee, i 2007 the ea  thi idiat i Gcc utie e t 7%. me iptaty, we a ee  Tabe 5 that the aeage  piate edit t GDP  ati (36%) i ti a bew the paabe ee whih exeed 100%  high-ie utie. Thi ea that the bakig et i Gu utie ha ape   gwth. The ati  etati i eatiey high (with ea 57.6% ad edia 50%) ad die widey a the bakig et  the Gcc utie (i = 32%, ax = 89.7%). Baed  the tw eaue  bak etati (i.e. CRk ad HHI ), Bb ad A Kaaeh (2006) hw that the bakig aket i the Gcc utie a be iewed a agig  deatey t highy etated, with Qata exhibitig the highet etated aket ad UAE the wet.

22

 5.2.

Review of Islamic Economics, vo. 13, no. 1, 2009

Regressions results To etiate the pae regreio ode (equatio 1), e ued three ateratie ode: Pooed ordiary eat quare, ixed eet ode ad rado eet ode. Three tet are appied to hooe betee thee ethod. firty the F -tet ho that idiidua eet are preet, ie the reeat f tatiti i igiiat at the 1% ee (F  (65, 450) = 7.38), thu e hooe the ixed eet ode. seody, or the rado eet ode ad i order to ietigate hether there i eidee o heteroedatiity i the reidua ariae, the Breuh-Paga lagrage utipier (LM ) i auated. with the arge hi-quared (LM tatiti = 456.22 ith p < 0.000), e rejet the u hypothei i aour o the rado eet ode. fiay a idiated by the Haua tet (H = 35.14 ith a p-aue = 0.0004), the dieree i oeiiet betee ixed eet ad rado eet i yteati, proidig eidee i aour o a ixed eet ode. Tabe 6 uarize the epiria reut o the etiatio o ode 2 (ithi ixed eet) uig ROAA a the proitabiity ariabe. The irt ou preet the reut o a bak i our data, both oetioa ad Iai. cou to ad three report the reut or oetioa ad Iai bak eparatey. The apita adequay ariabe (EQA) i highy igiiat ad poitiey  reated to ROAA hether e ook at oetioa or Iai bak. Thi reut i oitet ith preiou tudie (Berger, 1995; Derirgu-Kut ad Huizigua, 1999; Bahir ad Haa, 2003; Koidou ad Paioura, 2007; Be naeur ad Kadi, 2008) proidig upport to the arguet that bak ith a oud apita poitio are abe to purue buie opportuitie ore eetiey ad a harge ore or oa ad pay e o depoit beaue they ae oer bakrupty rik. A expeted, the oeiiet o  the ot to ioe ratio i egatie i a ae. Thi idig ho that the ot deiio o bak aageet are itrueta i iueig bak perorae. Ideed, eera tudie (maghyereh ad shaout, 2004; Koidou ad Paioura, 2007; maood et al . 2008; Athaaogou et al . 2008) idiate a egatie reatiohip betee operatioa eiiey  eaured by the oerhead ratio or ot to ioe ratio ad bak proit. Hoeer, Be naeur ad Goaid ( 2003), i the ae o Tuiia bak, oud a poitie aoiatio betee the retur o aet ad oerhead ratio. The reut ea that a ore otiated (e-paid) ta otribute to the proitabiity o the bakig idutry a oerhead i aiy opoed o  age.

Review of Islamic Economics, v. 13, n. 1, 2009

23

tabl 6: Rgrssion Rsuls (Fixd eff Modl) Variabls

EQA lQr nlA lTA coI TA Inf rGDP m2 cPGDP

smGDP conc Adjuted r2 f aue lm Haua tet nb. beati

All banks

convnional banks

Islami banks

0.064

0.049

0.054

(6.449)* 0.001 (0.368) 0.017 (1.704)*** 0.352 (5.316)* -0.064 (-8.456)* 0.216 (2.104)** 0.023 (1.525) 0.083 (2.218)** 0.020 (3.182)* 0.050 (0.424) 0. 783 (2.166)** 0.217 (2.563)** 0.509 46.679 456.22 35.14

(5.076)* -0.005 (-1.002) -0.015 (-1.958)** 0.023 (1.282) -0.046 (-8.535)* -0.066 (-1.315) -0.046 (-0.160) 0.018 (2.361)** 0.038 (2.358)** 0.011 (1.248) 0.481 (2.233)** 0.161 (2.927)* 0.653 61.097 320.36 29.67

(2.701)* 0.049 (1.953)** 0.044 (1.862)*** 0.414 (4.678)* -0.076 (-5.144)* -0.439 (-1.491) 0.031 (1.035) 0.012 (1.982)** 0.029 (2.200)** 0.009 (0.684) 0.021 (1.737)*** -

528

384

144

0.413 9.412 185.54 23.15

Notes: t-tatiti ae betwee paethee; ‘*’; ‘**’; ad ‘***’ idiate eiiet i igiiat at the 1%, 5%, ad 10% ee, epetiey.

The ipat  the ati et a t ute ad ht te udig (lQr)  roAA i igiiat ad pitie y  Iai bak. The eut idiate a egatie eatihip betwee bak pitabiity ad the ee   iquid aet hed by the bak. Adig t etai tudie (chg ad liu, 2008; o ad Zubi, 2008) Iai bak ae ikie tha etia bak. cequety, they ay hd e ah eatie t aet  depit,

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Review of Islamic Economics, vl. 13, n. 1, 2009

thu the liquidity uplu affect bak pfitability egatiely becaue f the pptuity ct f the idle ey. refeig t the cedit ik, the eult ae ixed. The ati et la t ttal aet i tatitically igificat ad pitiely elated t the pfitability  f bak. Thi i citet with peiu tudie (e.g. Bahi ad Haa, 2003; Be naceu ad Gaid, 2003). I the cae f cetial bak – ad ctay t u expectati – the aiable (NLA) i al igificat, yet ha a egatie ig. Thi eult ay be explaied by the fact that cetial bak aitai highe eee f la le, ctay t Ilaic pduct (f exaple, ijaah ad aiu Ilaic leae back chee) which ay  ile le ik tha cetial la;  le eee ae eeded f bad la. The fiacial ik aiable (LTA) ha a pitie ad igificat effect  etu  aeage aet f all bak ad epecially f Ilaic bak. Thi eult eeal the iptace f leeage i the pactice f Ilaic bak ad al idicate that Ilaic bak udetake e ik tha cetial bak. I fact, Ilaic bak geeally ue depit a a type f  leeage t achiee highe pfitability, but thi type f leeage ea the ik i al haed with depit. Thi i lie with ol ad Zubi (2008) wh fud that the equity ultiplie (Aet/Equity) i lage f Ilaic tha f cetial bak. I Table 6, the ize aiable (TA) i pitie ad igificat f all bak. Thi fidig i citet with peiu tudie (silck, 1985; Geay, 1999; maghyeech ad shaut, 2004). Hwee, if we exaie cetial ad Ilaic bak epaately, the effect f bak ize  pfitability i egatie ad uiptat. Thi ugget aily that if bak ize exceed a cetai alue, it pfitability ted t be lwe (vade veet, 1998). Ideed, Kidu ad Paiua (2007), ag the, fud a egatie aciati betwee ize ad bak’ pfitability f bth detic ad feig bak. Tuig t the acecic ctl aiable, Table 6 eeal that the gwth ate f ey upply (M 2) ad f eal g detic pduct (RGDP ) ae tatitically igificat ad pitiely elated t bth cetial ad Ilaic bak ROAA. siila eult, which uppt the aguet f a pitie elatihip betwee bak’ peface ad ecic gwth, wee btaied i the tudie i the Eupea aket (Kidu ad Paiua, 2007) ad i middle Eate cutie (Bahi ad Haa, 2003, mad et al. 2009). Table 6 al hw that iflati ate appea t hae a iigificat ipact  bak’ pfitability. Thi

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i beaue ilati duig the peid 2002–2006 wa lagely deate i the Gcc utie; thi i al pbably due t the high iteet agi that bak ea. Thee eult ae i ity with tudie that exaied igle utie i the middle Eat (e.g. maghyeeh ad shaut, 2004; mad et al. 2009). reeig t iaial tutue aiable, we ee that the tk aket apitalizati t GDP ati (SMGDP ) ad etati idiat (CONC ) hae a igiiat ad pitie eet  etu  aeage aet. Thi idig abut SMGDP ugget that thee ae pleetaitie betwee bak ad equity aket i Gcc utie. It al idiate that a lage tk aket elatie t the bakig et ieae bak pitability. o the the had, the elatihip betwee the etati idiat ad ROAA i igiiat at the 1% leel  etial bak. Thi i that aket tutue (SCP hypthei) ha a pitie ipat  gwth i the Gcc bakig et. Thi pitie eet i tly elated t the eiiey   e bak ledig due t t adatage a bak eap eie   ale i the pduti  bakig eie. Ideed, adig t the tudy   Al-muhaai et al . (2006), Gcc bak, epeially i Qata, Bahai, ad oa whih ae peatig ude diti  pliti petiti, ea ply pit by wkig with a wide agi  iteediati. fially, the epiial eult hw that the bakig deelpet aiable (CPGDP ) aet bak pitability pitiely, but thi eet i elatiely iigiiat  bth etial ad Ilai bak. Bahi ad Haa (2003), wh exaied Ilai bak i middle Eate utie ud a tg aiati betwee ati  ttal aet diided by  GDP  ad the ati  bee tax pit t ttal aet. I tat, e tudie (Deigu-Kut ad Huizigua, 1999; Kidu ad Paiua, 2007) lude that i the bakig aet titute a lage pti  the GDP , the ize  the bakig et will hae a egatie iidee  bak’ pitability. VI. conlusion

I the text  libealizati, the iaial ladape i Gcc utie uh a Kuwait, Qata, saudi Aabia, ad the UAE hae udege igiiat hage (ew liee t Ilai ad eig bak, ew iaial ee ze i Qata, Dubai, ad ra Al Kaiah) that ped geat hallege t the bak. Thee hage ieaed lal petiti ad uld hae e ipat  bak’ peae.

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Review of Islamic Economics, v. 13, n. 1, 2009

I thi paper, we adapt iear de t ietigate the deteriat  bak’ pritabiity r etia ad Iai eria bak peratig i Gcc utrie betwee 1999 ad 2006. The atr that ay  aet pritabiity, eaured by the retur  aerage aet, ie bakpeii harateriti, arei ariabe, ad iaia idutry  idiatr. The epiria reut idiate that the apita adequay rati i pitiey  reated t ROAA r bth Iai ad etia bak. likewie, the eiiet  peratia eiiey i a igiiat but ha a egatie ipat  perrae i bth ae. The reati betwee iquidity ad pritabiity i egatie y r Iai bak. Thee itituti are ikey  t be re iquid tha etia bak. The et a t aet rati ha a igiiat ipat  ROAA i a ae but with ppite ig r etia ad Iai bak. The dieree i the ipat  redit rik  pritabiity a be expaied by the aue  prii r pibe a e whih i uh higher i etia tha i Iai bak. The pitie ad igiiat eet  the iaia rik ariabe i the ae   Iai bak reea the iprtae  eerage i the pratie  Iai bak. fr a bak, the ize ariabe ha a pitie eet  pritabiity. Thi i prbaby due t eie  ae ad i itet with preiu tudie. The ipat  arei tr ariabe, uh a GDP  ad ey uppy,  pritabiity wa igiiat ad pitie i a ae. Thi idig pride additia upprt t the trg reatihip betwee ei grwth ad bakig etr perrae. A r the eet  iati rate, the tudy hwed that thi ariabe i iigiiat i expaiig pritabiity. Turig t iaia truture idiatr ad their eet  bak’ pritabiity, we ud that the tk arket apitaizati t GDP rati ad etrati were pitiey aiated t ROAA. Thee reut idiate,  the e had, that there are peetaritie betwee bak ad equity arket i Gcc utrie;  the ther had, the arket truture ha a pitie ipat  grwth i the bakig etr. Hweer, the arket truture  the Gcc bakig idutry i widey dieret i eah  the ix utrie. Ideed, A-muharrai et al . (2006) ud that Kuwait, saudi Arabia, ad UAE hae deratey etrated arket ad are ig t e etrated piti. I trat, bak i Bahrai, Qatar, ad oa perate uder diti  piti petiti. A ar a the bakig deepet idiatr i ered, it eet  pritabiity  i iigiiat. Thi ea that the tributi  eria bakig i

Review of Islamic Economics, vl. 13, n. 1, 2009

27

iaig the ey i till l i the Gcc utrie. The at that the rati i l (redit t priate etr t GDP ) h the exitee  aple r r Gcc bakig etr grth. oerall, thee epirial reult pride eidee that the pritability   Gcc bak i haped by bak-peii harateriti, arei ariable ad iaial idutry. Yet, e idiatr uh a ilati ad bakig deelpet d t ee t aet perrae. Baed  the reult  thi tudy, it i ueul t dra eeral reedati ad prpal. firt, Gcc utrie are expeted t pe up their bakig etr t reig petiti. Hee, etial ad Ilai bak eed t piti theele ad alig atiitie ith the i deelped utrie i rder t eure their tiued pritability. Thi uld be aplihed by buildig large atial hapi, hih a r the uleu  urther lidati  the regial leel. fr thi rea, it ight be better irt t liberalize the iaial etr betee Gcc utrie t ter r-brder iaial perati, ad the g r ttal liberalizati  thi regi. sed, ith a ery aurable ei eiret i the Gul regi, eeral pprtuitie exit r the bakig etr t ly i ledig but i raiig iae thrugh alteratie hael uh a real etate ud. mreer, etial ad Ilai bak a play a iprtat rle i iaig large ale ietet ar the Gcc utrie hih are etiated at Us$ 1 trilli betee 2006 ad 2010. Third, ardig t ay tudie, Ilai bak udertake re rik tha etial bak beaue they deal i e ad uailiar r   iae. Therere, a uggeted by ol ad Zubi (2008), they ay eed t be re areul i itrig ad regulatr ut ipe higher apital requireet  thi type  bak. The liitati  ur tudy are the llig. we did t ilude e ariable i ur del uh a the erhip tatu  bak ad the buie yle that ay aet bak’ pritability. furtherre, the tie perid  aalyi i relatiely hrt (8 year), ad e etiate that the reult ay be dieret i a larger tie rae i ued, epeially iludig the year 2007 ad 2008, hih iteed ertai iprtat eet (rie i ilati, tk arket bubble…). fially, it uld be iteretig t ide the aple  tudy by addig ther utrie. fr exaple, e a exaie the atr ilueig bak’ pritability i the middle Eater ad nrth Aria (mEnA) utrie r, re largely, i the hle Arab regi.

Review of Islamic Economics, v. 13, n. 1, 2009

28

Notes 1. 2. 3. 4.

5. 6. 7. 8.

Gcc Bakig may, 2007: Ititute  Bakig studie, Kuait Gcc Bakig may, 2007: Ititute  Bakig studie, Kuait. Gcc ppuati gth ha aeaged 3.4% pe au, betee 2002 ad 2006, ag the highet ate i the d. me tha ha  the pjet ($200 bii) auhed ie 2003 hae bee ped by geet (iitie, uiipaitie, ad the geet-ed etitie uh a atia i paie). Gcc Bakig may, 2007: Ititute  Bakig studie, Kuait. I the eu ze the ati of tta aet t GDP i equa 189%. othe ati ued t eaue edit ik ee a/depit, a- pii/ a ad pii /aet. Thi aiabe a be eaued by diidig the geea ad adiitatie expee e tta aet.

R efeReNces

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