Accelerat ing t he world's research.

Determinants of Islamic and

conventional banks
Rahmiwati (Mye Gucci)

Related papers Download a PDF Pack of t he best relat ed papers 

Analyzing performance det erminant s: Convent ional versus Islamic Banks in Pakist an-NC- ND …
Hamza Mir

Det erminant s of Islamic Banks’ Profit abilit y: Some Evidence from Pakist an
Rizwan Muhammad

Fact ors impact ing profit abilit y of commercial banks in Pakist an for t he period of (2009-2012)
IJSRP Journal
 Global Economy and Finance Journal
Vol. 5. No. 1. March 2012. Pp. 53 - 72

Determinants of Islamic and Conventional Banks

Performance in GCC Countries Using Panel Data Analysis

Rami Zeitun1
This study investigates some influential factors (foreign
ownership, banks-specific variables, and macroeconomic
factors) on Islamic and conventional banks in Gulf
Cooperation Council (GCC) countries, during the period 2002-
2009, using a cross-sectional time-series (panel data). Two
samples are used in this study. The first sample contains 38
conventional banks. The second sample contains 13 Islamic
banks. The results show that bank’s equity is important in
explaining and increasing conventional banks profitability only.
The cost-to-income had a negative and significant impact on
Islamic and conventional banks performance. Additionally, the
estimated effect of size provides evidence of economies of
scale in Islamic banking using the ROE, while it is not
significant for conventional banks. Foreign ownership,
however, does not improve Islamic and conventional banks
performance. Furthermore, bank’s age and banking
development have no effect on bank performance. Finally,
GDP is positively correlated to bank’s profitability, while
inflation is negatively correlated to bank’s profitability.

JEL Codes: G21, G32, G33 and P43

1. Introduction
The Gulf Cooperation Council (GCC) consists of six oil-producing countries located in
the Middle East: Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab
Emirates (UAE). The GCC countries are independent governments with independent
currencies. Their total population is approximately 42 million. Furthermore, they have
the largest oil reserves in the world. The banking sector in the GCC countries is
largely owned by locals due to entry barriers and licensing restrictions for foreign
ownership. For example, in Qatar foreigners are not allowed to own more than 49%,
while in Oman just 35% (Alkassim 2005).
The financial systems in the GCC countries are generally dominated by the banking
sector, while, the non-bank financial institutions have limited presence in the GCC
countries. Banking sector plays a main role in financing economic activities.
Furthermore, GCC countries have two banking systems; the conventional banking
system and the Islamic banking system, which operates according to Islamic law.
Islamic banking is a new phenomenon that has taken place in many Islamic and non-
Islamic countries. It commenced in the Islamic world more than three decades ago.
Since then Islamic banking has played an important role in financing and contributing
to the development of different economic and social sectors in the Muslim countries.

1
Dr. Rami Zeitun, Department of Finance and Economic, College of Business and Economic, Qatar University.
Emails: rami.zeitun@qu.edu.qa and r_zaiton2005@yahoo.com .
 Zeitun

The whole banking system has been Islamized in Iran, Sudan and Pakistan. In
addition, there is an increasing number of Islamic banks in operation in other parts of
the globe, including the numerous non-Islamic financial institutions that provide
Islamic financial services to customers.

According to some estimates, Islamic banking has grown at an annual rate of 15 per
cent during the past five years. Currently, it is estimated that there are approximately
more than 300 Islamic Financial Institutions operating in 75 countries. The assets of
Islamic banks around the world were $650 billion in 2008, $822 billion in 2009 and
rose to $1.3 trillion in 2010 (New Horizon-Islamic Banking 2010). Islamic banking is
growing with a rate of 10-15% annually, and with indications of good future growth as
the demand for Shariah-compliant (Islamic jurisprudence) financial products
increased. For example, it is expected that their total assets will rise up to $3 trillion
by 2016 (Eurasia Review 2011). The GCC countries have the largest percentage of
these institutions because the region is the primary source of funding for Islamic
banking activities. In addition, there is an increasing demand for Islamic banking in
non-Muslim countries.

Islamic banking provides services that are based on the Islamic Sharia law
(principle). Islamic financing is based on a Profit-and-Loss-Sharing (PLS) principle
rather than interest-based. There are several principles distinguishing Islamic banks
from traditional banks (See for example, Zeitun 2011, Olson and Zoubi 2008: and
Chong and Liu 2008, among others). The main principle of Islamic banking is the
prohibition of Riba (Interest). The second principle is that the undertaken investment
should be on the basis of halal activities. The third principle is that all transactions
should be free from gharar (unreasonable uncertainty) and Maiser (speculation or
gambling). The fourth principle is that Zakat must be paid by the Islamic bank (IB) to
benefit society. The fifth principle is that all activities carried by the bank should be in
line with Islamic principles. On the other hand, conventional banking (CB) is based on
the interest rate (between depositors and bank and between bank and borrowers).
Investors in CB are assured of a predetermined interest rate, while in IB it promotes
risk sharing between the provider of funds and the user of funds.

One of the main differences between Islamic and conventional banks is the product
structure. The product structure in Islamic banks is considered as asset backed
instrument financing, while it is not in CB, which may affect IB performance. For
example, Islamic banks are not exposed to some types of assets that are considered
risky and experienced losses by CB, such as financial derivatives (Hassan and Dridi
2010). PLS principle in Islamic financing could be one of the reasons to why Islamic
banks are protected and participates in the stability of a bank’s profit. Islamic banks
invest their funds jointly with customer through different methods of finance, such as;
Musharaka, Mudarabahi, and Murabahahii. The other financing methods for Shariah-
compliant investment include other products, such as: Ijarahiii, Ijarah Wa Iqtinaiv,
Sukukv, Istisn’avi, Muzarah, Mosanah, and Mark-up. Therefore, an Islamic bank profit
can be generated from equity financing profit (e.g. Musharaka and Mudarabah), debt
financing (e.g. BBA and Murabahah), none financing income (e.g. commission and
fees), and others (e.g. Wakalah). Thus, equity financing is the main difference
between Islamic and conventional banks which may affect its performance (Hanif
2011: and Hanif and Iqbal, 2010).

54
 Zeitun

The banking sectors in the GCC countries were strengthened by high profits and
capital. Having a strong and profitable banking system contributes to the stability of
the financial system. The GCC countries have the largest percentage of the Islamic
financial institutions as the GCC is the primary source of funding for Islamic banking
activity. According to the General Council for Islamic Banks and Financial Institutions
(CIBAFI) (2010), the total number of Islamic financial institutions, institutions with
Islamic windows and institutions with Islamic activity in the GCC has reached 248
institutions in the year 2009. Therefore, the determinants of Islamic banks
performance have attracted the interest of academic researchers, bank management,
and investors.

Despite the vast growth of Islamic financing, only several recent researches have
examined the Islamic banks performance compared to conventional (Akhtar et al.
2011, Srairi 2009: and Olson and Zoubi 2008). Therefore, the present study aims to
improve the understanding of the determinants of the bank performance for both
conventional and Islamic banks in the GCC. Islamic banks have survived the financial
crisis compared to conventional banks this is because of the uniqueness of Islamic
banks products. For example, there is no Islamic bank that has announced
bankruptcy, while more than 100 conventional banks (dealing with interest) in USA
and other countries went bankrupt because of the financial crises.

This paper makes several contributions. It is the first study for the GCC countries that
analyses the determinants of banks performance for both Islamic and conventional,
using two measures of performance (ROA and ROE). Also, this paper represents the
first attempt to investigate the effect of foreign ownership on Islamic and conventional
banks’ performance in GCC. The current study attempts to analyze the effect of
some internal and external factors on Islamic banks’ performance as they are
different from conventional banks. Furthermore, this paper attempts to shed light on
the effect of equity on IB and CB due to differences in product structure and deposits.

This paper is intended to help Islamic and conventional banks to improve their
performance to remain competitive. The explanatory variables used in this study are
bank-specific factors, macroeconomic determinants and foreign ownership. The
remainder of the paper is organized as follows: the next section presents the
literature review. The third section explains the sample, the sources of data, and the
empirical model used in the study. The fourth section reports the empirical findings of
the study. Section five concludes the study and provides the limitations and
suggestions for future studies.

2. Literature Review
A large number of empirical studies have been conducted about determinants of
bank performance. Most of these studies were conducted in the developed countries,
while very few studies provide evidence from developing countries. One of the early
studies attempted to find out the major determinants of bank performance and
profitability was carried by Short (1979) and Brouke (1989). Since then many studies
have been conducted by other researchers, such as Molyneux and Thornton (1992),
Demirguc-Kunt and Huizinga (1999), Abreu and Mendes (2002), Staikouras and
Wood (2004), Athanasoglou et al. (2006), Micco et al. (2007) and Pasiouras and
Kosmidou (2007) to investigate the variables related to bank profitability.

55
 Zeitun

Bourke (1989) suggested that there is a positive relationship between liquidity and
profitability. Nevertheless, some studies illustrate that smaller amount of funds put in
liquid investments can result in higher profitability (see for example, Eichengreen and
Gibson 2001: and Molyneux and Thornton 1992). Molyneux and Thornton (1992)
studied banks performance in 18 European countries during the period 1986-1989.
They found a significant positive relationship between the return on equity (ROE) and
government ownership, bank concentration and the level of interest rates in each
country. On the other hand, Bashir (2000) studied Islamic banks performance over
the period 1993-1998 in eight Middle Eastern countries’. He reported a positive
significant relationship between leverage and loans to asset ratios and bank
performance. He also concluded that foreign-owned banks are more profitable than
the non-foreign-owned ones.

Halkos and Salamouris (2004) provided evidence from Greek. They showed that
banks with larger assets are more profitable. A positive relationship between size and
bank efficiency was also suggested by Bikker (1999) for the European banking
industry. Kosmidou (2008) studied the determinants of performance for 23 Greek
banks during the period 1990-2002. In his study, the return on average assets
(ROAA) is used as bank performance measure. Cost-to-income ratio, equity to total
assets, bank’s loans to customer and short-term funding, loan loss reserves to gross
loans, and the bank’s total assets were used as internal determinants. On the other
hand, he used the annual change in GDP, inflation rate, growth of money supply,
stock market capitalization to total assets, total assets to GDP, and concentration as
external determinants of performance. The results suggest that ROAA is associated
with well-capitalized banks and with lower cost-to-income ratios. Also, both size and
the growth of GDP were positively related to banks performance, while inflation had a
negative impact on banks performance. A study by Delis and Papanikolaou (2009)
found that bank size, industry concentration, and investment environment had a
positive impact on bank’s efficiency.

Ben Naceur and Goaied (2001) utilized data from Tunisia to examine the
determinants of the Tunisian banks’ performance during the period 1980-1995. Their
result identified that labor and capital productivity; high level of deposit accounts
relative to assets, and finally, reinforced equity have positive impact on the banks
performance. Guru et al. (2002) provided evidence from Malaysia. They investigated
the factors that affect banks performance and profitability for seventeen Malaysian
commercial banks, over the period 1986-1995. They used capital adequacy, liquidity
and management expenses as internal factors. Firm size, ownership and external
economic conditions were used as external determinants. The results indicated that
management expenses had a significant positive impact on bank’s profitability. The
results also suggested that high interest results in low bank profitability. Contrary to
that, inflation had a positive impact on bank performance.

Ahmed and Khababa(1999) examined the determinants of the banking sector in

Saudi Arabia. They used the ROA, ROE, and the percentage of change in earnings
per share as profitability measures. They found that business risk and bank size are
the main determinants of the Saudi banks’ performance. A study by Eichengreen and
Gibson (2001) proposed that bank’s size had a positive impact on profitability to a
certain limit. However, the size effect could be negative due to bureaucracy. Akhtar et
al. (2011) used a sample of Islamic banks in Pakistan over the period 2006-2009 to

56
 Zeitun

investigate the effect of bank-specific factors on bank’s profitability using a

multivariate regression models. They found that gearing and capital adequacy ratios
had a significant positive impact on bank performance. On the other hand, bank size
affected performance negatively but insignificantly. Srairi (2009) examined the impact
of bank characteristics, macroeconomic factors, and financial structure on banks
profitability for conventional and Islamic commercial banks operating in GCC
countries for the period 1999–2006. Their results have shown that the profitability of
Islamic and conventional banks is affected by operational efficiency, capital
adequacy and credit risk. The empirical results revealed that macroeconomic
variables, with the exception of inflation rate, positively affected profit.

Olson and Zoubi (2008) used 26 financial ratios to compare Islamic and conventional
banks in the GCC countries over the period 2000–2005. They found that Islamic
banks are less efficient and operating with greater risk compared to conventional
banks. The product structure in IB is different from CB as it is considered as asset
backed instrument financing. Deposit funds in CB are based on a predetermined
interest rate, while deposit funds in Islamic bank are similar to equity as they share
different types of risk (see for example, Hanif 2011, among others). Furthermore,
Islamic banks are not exposed to same types of assets that considered risky and
experienced losses by CB (Hassan and Dridi 2010). Chong and Liu (2008)
investigated whether Islamic banking is different from conventional banking using
Malaysian data. The empirical results suggested that Islamic deposits are not very
different from conventional deposits. They also revealed that only a negligible portion
of Islamic bank financing is strictly PLS-based and that Islamic deposits are not
interest-free, but are closely pegged to conventional deposits. Masood et al. (2009)
identify the determinants of commercial banks’ profitability in Saudi Arabia for the
period 1999–2007. Their results indicate that operational efficiency, earning assets to
deposits; capital adequacy ratio, GDP growth, and financial development significantly
affect banks profitability. On the other hand, credit risk and inflation insignificantly
affect profitability. Haron (2004) examined the impact of profitability determinants on
Islamic banks performance. He found that internal factors (such as liquidity, total
expenditures, and the percentage of the profit-sharing ratio between the bank and
the borrower) and external factors (such as interest rates, market share, money
supply, and bank size) are highly correlated with Islamic banks income and
profitability.

Pasiouras and Kosmidou (2007) used data from 15 European countries for the period
1995–2001 to examine how a bank’s specific variables (total asset, loans to
customers, equity to total assets, short term funding and cost to income), banking
environment (GDP growth, market capitalization (MC) to bank assets, stock market
capitalization (SMC) to GDP, concentration (largest five shareholders), bank total
assets to GDP and inflation rate) affect the profitability of commercial domestic and
foreign banks. They found a significant relationship between these variables and
banks performance.

According to the agency theory (Jensen and Meckling 1976), ownership structure
could be related to bank’s profitability. The connection between ownership structure
and performance has been an ongoing debate in the corporate finance literature (e.g.
Zeitun 2009, Demsetz and Villalonga 2001, among others). However, the results are
mixed. Barth et al. (2004), for example, found that privately-owned banks are more

57
 Zeitun

profitable. On the other hand, Molyneux, and Thornton (1992) found a significant
positive relationship between ownership structure and bank profitability. However, a
weak adverse relationship was found between ownership and performance in a study
conducted by Bourke (1989). Micco et al. (2004) provided evidence from developing
countries about the existence of strong relationship between ownership structure and
bank performance. They found that foreign-owned banks were characterized by
higher profitability followed by private counterparts. Banks owned by government
were found to be the lowest profitable. On the other hand, Gupta (2005) result
showed that non-controlling shares of state-owned firms to be held privately had
positive effect on banks profitability in India.

The external determinants are the macroeconomic variables (such as interest rate,
inflation, GDP, money supply and exchange rate) that affect the whole economy and
considered as important determinants of performance. Several studies have reported
a positive relationship between GDP and bank profitability (see for example,
Demirguc-Kunt and Huizinga 1999, Bikker and Hu 2002: and Athanasoglou et al.
2008, among others). Revell (1979) discussed the relationship between bank
profitability and inflation. He found that the effect of inflation on bank profitability
varies depending on how fast the level of increase in banks operating expenses is,
as well as the rate of inflation. Perry (1992) stated that inflation impacts on banks
profitability depends on whether it is fully anticipated or not (e.g. Rasiah 2010, among
others). A positive relationship between inflation and profitability has been reported
by Bourke (1989), Molyneux, and Thornton (1992)vii and Athanasoglou et al. (2008),
among others. On the other hand, Hasan (2009) reported a negative relationship
between inflation and performance.

3. Methodology
3.1 Data

A cross-sectional and time-series (panel data analysis) data relating to the banks in
(GCC) countries were employed in this study that derived from the Bankscope
database for the period 2002-2009. The major items of interest are: balance sheets,
income statements, ownership structure and macroeconomic variables.

3.2 Samples

Two samples are used in this study. The first sample contains 38 conventional banks
comprising four banks from Bahrain, four banks from Oman, eight banks from Saudi
Arabia, five banks from Qatar, five banks from Kuwait, and twelve banks from the
UAE. The second sample contains 13 conventional banks comprising three banks
from Bahrain, two banks from Saudi Arabia, two banks from Qatar, one bank from
Kuwait, and five banks from the UAE.

3.3. Variables Used in the Study

In this study two measures of bank performance (profitability) are used: Return on
assets (ROA), which is net income to total assets, and Return on equity (ROE), which
is net income to total equity. These two ratios are considered by Sinkey (2002) as the

58
 Zeitun

best measures of a bank’s performance. These two ratios were used by others, such
as Williams (2003), Kosmidou (2008), Siddiqui (2008), and Sufian and Habibullah
(2009). The following are the independent variables used in this study. The first
independent variable is bank age measured by the number of years. Stanger (2000)
argued that there is a positive relationship between the bank’s age and its
profitability. However, a negative relationship between age and growth rate was
reported by Almus and Nerlinger (1999). We expect that older banks to be more
profitable than younger banks due to their experience. The second variable is bank’s
equity. The effect of equity on ROA and ROE can be postulated to be different due to
the different nature of deposits between the two banking systems (IB and CB).
Deposits in Islamic banks are more like equity as they are based on PLS principle,
while in conventional banks it is considered as debt because it is based on interest
rate. Therefore, it is expected that equity in an IB, compared with CB, will have a
lesser effect on performance. Bourke (1989), Demirguc-Kunt and Huizinga (1999),
Goddard et al. (2004), and Pasiouras and Kosmidou (2007) suggested that equity
has a positive effect on profitability. A recent study by Dietricha and Wanzenrie
(2011) for a sample of 453 commercial banks in Switzerland supported this
argument.

The third variable is the bank’s size measured by log of total assets. It is argued that
bank size is positively related to bank profitability since increasing in bank’s size may
reduce cost (e.g. Smirlock 1985: and Pasiouras and Kosmidou 2007). The fourth
variable is the reserve to loan ratio measured by bank reserve against bank's total
loans. It is expected that there will be a negative relationship between the reserve to
loan and bank profitability. A study by Toby (2007) found that there is a negative
correlation between the reserve to loan ratio and bank performance in Nigerian
banks. The fifth variable is financial development measured by total assets to GDP
(e.g. Hsiu-Ling et al. 2007). The sixth variable is foreign ownership. Foreign
ownership is expected to have a positive effect on bank’s performance as suggested
by Claessens et al. (2000). Claessens et al. (2000) reported that in many developing
countries (for example Indonesia and Egypt) foreign banks have a higher net interest
margin than domestic banks. Also, they found that foreign banks achieved higher net
profitability than local banks in Latin America and Asia.

There is strong empirical evidence about the ownership effect on bank’s profitability.
A study conducted by Micco et al. (2007) and Iannotta et al. (2007) showed that
government-owned banks exhibit lower profitability than privately owned banks. On
the other hand, Bourke (1989) and Molyneux and Thornton (1992) found that there is
no significant relationship between the ownership status and bank performance. The
seventh variable is the cost-to-income ratio measured by the operating costs over
total revenues. This ratio measures the impact of efficiency on bank profitability. We,
therefore, expect higher cost-income ratio to have a negative effect on bank
profitability. A study by Athanasoglou et al. (2008) showed that efficient cost
management is significant for improving banks profitability. The eighth variable is the
economic conditions measured by the GDP growth. It is expected that there is a
positive relationship between GDP and bank profitability according to the literature
(see for example, Demirguc-Kunt and Huizinga 1999, Bikker and Hu 2002: and
Athanasoglou et al. 2008). The last variable used in this study is inflation. However,
the relationship between expected inflation and profitability is ambiguous. A study by
Delis and Papanikolaou (2009) and Athanasoglou et al. (2005) showed that inflation

59
 Zeitun

has positively and significantly affected profitability. On the other hand, Bashir and
Hassan (2004) found a neagtive relationship between inflation and bank’s
profitability. However, Srairi (2009) could not find any significant relationship between
inflation and performance.

3.4 Empirical Model

To assess the determinants of bank profitability we use an unbalanced panel data

model. The estimated model for the two samples of companies in a panel data

y it  0  1age it   2equity it  3Size it   4 res  loan it 

approach is :

5firait  6 cos t  inc it  7 forn  GCC it  8GDPit  9 infit  i  u it

(1)

where y it is alternatively ROA or ROE, for bank i as a measure of performance at

time t.  0 is a constant term. The independent variables are Age, Equity, Size, res-
loan (reserve to loan), For-GCC, Cost- Inc (cost to income), fira (financial
development), GDP and Inf (inflation). The random effect model (RE) is applied in
this study. Under a RE model the estimation method is generalized least squares
(GLS). The pooled OLS regression is also estimated to compare the OLS results with
the random effect model (RE). Dummy variables are also used to control for country
effect.

4. Empirical Findings

Table 1 reports the descriptive statistics for the variables used in our analyses for
Islamic and conventional banks. Based on the first measure of performance ROA, the
reported mean is about 3.11 percent for Islamic banks, while it is 2.46 percent for
conventional banks. On the other hand, the mean for the ROE for Islamic banks
(16.16) is smaller than conventional banks (17.82). The descriptive statistics for
explanatory variables for Islamic and conventional banks show that they are different.
For example, the reported mean for reserve-loan, cost-income, and foreign
ownership is larger for Islamic banks than conventional banks. Table 2 provides the
correlations among these variables for conventional and Islamic banks in the GCC
countries. As suggested by Anderson et al. (1990) any correlation coefficient
exceeding (0.7) indicates a potential problem in choosing both variables. However,
the results show that there is no multicollinearity problem among the independent
variables used in the analysis in both samples. Therefore, all the variables were used
in the analysis.

60
 Zeitun

Table 1: Statistical Summary for Conventional and Islamic Banks in GCC Countries
Conventional Banks Islamic Banks
Variable Mean Std. Min Max Mean Std. Min Max
Dev. Dev.
ROA 2.4633 1.7822 -19.4 8.1 3.1065 4.3785 -11.9 35.1
ROE 17.815 13.2768 -110.8 42.1 16.157 19.989 -119.5 73.2
Age 31.781 10.131 9 59 24.5773 7.72555 1 34
Equity 1557.2 1488.4 38.88 8023.68 1354.31 1651.39 22.344 7472.63
Size 41351 97948 344 151973 25124.4 39170 125.9 170730
Reserve-Loan 246.76 272.78 3.105 2233.6 275.214 329.843 0 1440.56

Cost-income 35.392 10.7558 15.62 96.4 38.1214 14.7385 14.3 92.86

Foreign Ownership 5.24559 11.145 0 40 11.2159 20.4161 0 62.82

Financial 11117.2 23956 -2726 195720 5132.76 9332 -1520 52036

Development
GDP 5.84563 2.88589 -2 13.4 6.3727 2.5178 -2 13.4
Inflation 0.05613 0.05888 -0.005 0.5 0.06135 0.05513 -0.002 0.2

Table 2: The Correlation Coefficients between Independent Variables for

Conventional and Islamic Banks
Conventional Banks

Reserve- Cost- Foreign Financial

Age Equity Size Loan Income Owner Development GDP Inflation
Age 1

Equity 0.35 1
Size 0.20 0.44 1
Reserve-loan 0.27 0.55 0.13 1
Cost-income -0.29 -0.27 -0.17 -0.13 1
Foreign
Ownership -0.05 -0.21 -0.17 -0.21 0.27 1.00
Financial
Development 0.12 0.42 0.48 0.21 -0.06 -0.21 1.00
GDP 0.21 0.10 0.07 -0.04 -0.21 0.07 -0.28 1.00
Inflation 0.15 0.19 0.18 0.04 -0.03 -0.04 -0.04 0.57 1.00
Islamic Banks
Reserve- Cost- Foreign Financial
Age Equity Size Loan Income Owner Development GDP Inflation
Age 1.00
Equity 0.15 1.00
Size 0.31 0.53 1.00
Reserve-loan 0.03 0.54 0.74 1.00
Cost-income 0.20 -0.30 -0.33 -0.08 1.00
Foreign
Ownership -0.06 -0.27 -0.21 -0.06 0.30 1.00
Financial
Development -0.02 0.43 0.56 0.55 -0.21 -0.27 1.00
GDP 0.05 0.08 0.09 -0.11 -0.35 -0.01 -0.27 1.00
Inflation 0.40 0.25 0.31 0.08 -0.15 -0.17 0.10 0.51 1.00

61
 Zeitun

The estimation results of Equation (1) using conventional banks sample are
presented in Table 3 using the Random-Effects model and OLS for ROA and ROE as
dependent variable. It can be seen from Table 3 that the explanatory power of the
adjusted R-square explained 55 percent of the variation of conventional banks’
performance when ROA is used as dependent variable and 43 percent when ROE is
used. Table 4 provides the results for Islamic banks sample using ROE and ROA as
dependent variables for the random effect model and OLS. It can be seen from Table
4 that the explanatory power of the adjusted R-square explained 70% of the variation
of Islamic banks’ performance when ROA is used as dependent variable and 68.56%
using ROE.

The estimated coefficient of the CB age is negative, and statistically, significantly

affects ROE using random effect model at least at 1% level, while it is negative but
insignificant using the ROA. Also, IB age was found to have a negative and
significant impact on ROE; at least at 5 % level, while it is not significant using the
ROA. This finding is similar to the results for CB sample. So, bank’s age has no
impact on bank performance ROA whether it is IB or CB. The negative coefficient of
banks’ age indicates that bank performance is better for younger banks than older
one. The significant negative effect of age on IB and CB performance may be due to
more virtual nature of banking in recent decades compared their nature before.
Another explanation could be that older banks are more likely to have substantially
higher brick and moderate expenditures as compared with younger banks and
thereby having higher overhead costs, which might outweigh gains from experience,
if any. This result is inconsistent with our expectation. However, this result is
consistent with Almus and Nerlinger (1999) who found an inverse relationship
between age and growth rate using CB sample, although Stanger (2000) did not
support such conclusion. We further investigate whether the relationship between
bank’s age and IB and CB performance is nonlinear (see Table 5 and Table 6). The
results in table 5 and table 6 provide no evidence of the nonlinear relationship
between age and bank performance.

Bank’s equity is positively and significantly related to CB profitability using both ROA
and ROE. This finding is consistent with Bourke (1989), Molyneux and Thornton
(1992), that a bank with more equity is able to pursue business opportunities more
effectively, and thus, achieving more profit. However, as expected equity in an IB,
relative to CB, will have a lesser effect on performance, bank equity is positively but
insignificantly related to IB profitability using both ROA and ROE, which is different
form CB. This could be due to the different nature of deposits between IB and CB
where deposits in IB are more like equity as they are based on PLS principle, while it
is considered as debt in CB because is based on interest rate. Overall, this finding
may suggest that there is a structural difference between IB and CBviii.

62
 Zeitun

Table 3: Estimation Results for Panel Data Model and Pooled OLS Using ROA and
ROE as Dependent Variable for Conventional Banks with Country Dummy Variables

Independent Variables ROA ROE ROA ROE

Random-effect Random-effect OLS OLS
Model Model
Constant 9.20613 46.35036 9.448157 35.25895
(7.83)* (3.81)* (10.02)* (3.53)*

Bank Age -0.01521 -0.3019508 -0.011552 -0.27105

(-1.13) (-2.33)** (-1.45) (-3.24)*
Equity 0.00033 0.00243 0.000422 0.00235
(4.19)* (2.86)* (5.52)* (2.92)*
Size(Total Asset) -0.96237 0.334104 -1.232101 1.70435
(-3.1)* (0.1) (-4.95)* (0.65)
Reserve – Loan Ratio -0.00229 -0.02835 -0.002078 -0.0245
(-6.32)* (-7.18)* (-5.5)* (-6.17)*

Cost-income -0.07454 -0.55706 -0.062616 -0.43973

(-9.99)* (-6.89)* (-8.61)* (-5.72)*
Foreign ownership 0.00345 0.01358 -0.00035 0.0145
(0.3) (0.12) (-0.05) (0.2)

Financial development 2.22E-06 -2.19E-06 3.88E-06 7.09E-06

(0.65) (-0.06) (1.03) (0.18)

GDP 0.105414 0.6776886 0.120423 0.752738

(4.02)* (2.35)** (4.02)* (2.38)**

Inflation -7.77917 -46.3445 -8.526946 -59.0174

(-5.15)* (-2.85)* (-5.48)* (-3.58)*
Dummy variable for 0.107322 5.672922 0.1221181 4.800339
Saudi Arabia (0.26) (1.39) (0.48) (1.79)***

Dummy variable for -0.944282 -5.44491 -0.823856 -6.4053

Bahrain (-1.38) (-0.82) (-2.04)** (-1.5)
Dummy variable for -0.219197 2.997032 -0.176367 2.147452
Kuwait (-0.4) (0.56) (-0.49) (0.58)
Dummy variable for 0.203722 0.4568199 0.2654675 1.495659
UAE (0.54) (0.12) (1.13) (0.6)

Dummy variable for -0.420393 -2.372611 -0.304959 -1.12805

Qatar (-0.97) (-0.56) (-1.1) (-0.38)

No. of Observation 219 220 219 220

R-Square 0.55 0.43 0.53 0.4364
Wald Test 310.87* 188.87*
Huasman Test 13.47** 20.38* 18.54* 11.34*
Breusch and Pagan 36.31* 17.99*

Note: *, **, ** * indicate significant at a 1%, 5%, and 10% level, respectively. t statistics are in parentheses.
Statistical significance t-statistics are determined with White (1980) standard errors to correct for
heteroskedasticity.

63
 Zeitun

Table 4: Estimation Results for Panel Data Model and Pooled OLS Using ROA and
ROE as Dependent Variable for Islamic Banks with Country Dummy Variables

ROA ROE ROA ROE

Random-effect Random-effect OLS OLS
Model Model
Constant 7.386999 28.18975 7.386999 28.18975
(-2.31)** (1.68)*** (2.31)** (1.68)***
Bank Age 0.024173 -0.96284 0.024173 -0.96284
(0.34) (-2.62)* (0.34) (-2.62)**
Equity 0.000458 0.000269 0.000458 0.000269
(1.16) (0.13) (1.16) (0.13)
Size(Total Asset) -0.36529 9.959442 -0.36529 9.959442
(-0.51) (2.64)* (-0.51) (2.64)**
Reserve – Loan Ratio -0.00172 -0.01091 -0.00172 -0.01091
(-1.1) (-1.34) (-1.1) (-1.34)
Cost-income -0.11982 -0.47237 -0.11982 -0.47237
(-5.73)* (-4.3)* (-5.73)* (-4.3)*
Foreign ownership 0.009434 -0.04571 0.009434 -0.04571
(0.56) (-0.51) (0.56) (-0.51)
Financial -6.40E-05 -0.00033 -6.40E-05 -0.00033
development (-1.24) (-1.23) (-1.24) (-1.23)
GDP 0.069858 0.486836 0.069858 0.486836
(0.57) (0.76) (0.57) (0.76)
Inflation -10.6029 -87.8738 -10.6029 -87.8738
(-1.76)*** (-2.79)* (-1.76)*** (-2.79)*
Dummy variable for 3.060531 11.29244 3.060531 11.29244
Saudi Arabia (2.67)* (1.88)*** (2.67)* (1.88)***
Dummy variable for 0.678815 -2.033 0.678815 -2.033
Bahrain (0.51) (-0.29) (0.51) (-0.29)
Dummy variable for 0.622411 5.749991 0.622411 5.749991
UAE (0.56) (0.98) (0.56) (0.98)
Dummy variable for 1.293819 0.237462 1.293819 0.237462
Qatar (0.9) (0.03) (0.9) (0.03)

No. of Observation 66 66 66 66
R-Square 0.70 0.725 0.6237 0.6564
Wald Test 120.73* 137.16* 9.29* 10.55*
Huasman Test 6.2 5.61
0.4 0.469
Breusch and Pagan 0.1 0.14
0.8 0.712
Note: *, **, *** indicate significant at a 1%, 5%, and 10% level, respectively. t statistics are in parentheses.
Statistical significance t-statistics are determined with White (1980) standard errors to correct for
heteroskedasticity.

Intresttingly, the estimated coefficient of the CB size is negative and statistically

significant at least at 1 % level using the ROA, while it has a negative and
insignificant coefficient for ROE. On the other hand, IB size is positive and
significantly affects ROE. This finding indicates that IB size affects its performance,

64
 Zeitun

which is different from CB. However, IB size has a negative and insignificant
coefficient using ROA, whereas the size has a negative and significant effect on CB
performance ROA. This finding indicates that bank’s size affects differently Islamic
and conventional banks performance, using different measures of performance (ROA
or ROE). It also provides evidence of economies of scale in banking using the ROE
for Islamic banks only. We further investigate whether the relationship between
bank’s size and IB and CB performance is nonlinear (see Table 5 and Table 6). The
results in table 5 and table 6 provide no evidence of the nonlinear relationship
between size and bank performance.

The reserve-loan coefficient for CB is negative and significant at least at 1% level in

ROA and ROE. This result is consistent with the finding of Toby (2007), that reserve
to loan has a negative impact on bank’s performance. The reserve-loan was found to
have a negative but insignificant impact on ROA and ROE for IB, which is different
from CBix. So more reserve-loan results in less opportunity to invest and less profit
for CB but not for IB. As expected the cost-income ratio decreases bank performance
for both IB and CB since any increase in costs decreases profit margin. Our results
show that the coefficient of the cost-income ratio is negative and significant at least at
1% level in ROA and ROE for both IB and CB. This result is consistent with the
finding of Athanasoglou et al. (2008), among others.
Foreign ownership was found to have a positive but insignificant impact on CB
performance ROA and ROE using the random effect model, while it had positive and
insignificant impact on IB performance ROA. Foreign ownership was found to have a
negative but insignificant impact on IB performance ROE. This result is inconsistent
with Micco et al. (2004) finding that foreign ownership improved performance. An
explanation could be that GCC economies are not fully opened to foreign investors
(Alkassim 2005: and Al-Muharrami et al., 2006). So in GCC countries where banks
operate under conditions of perfect competition or monopolistic competition, family
ownership, or government ownership could affect banks performance more than
foreign ownership. It may also indicate that the presence of foreign ownership forces
management to allocate resources for their own benefit as they are not sure about
the foreigners’ strategies. On the other hand, financial development seems not to
have any significant impact not only on conventional banks performance, but also on
Islamic banks performance ROA and ROE.

The estimated coefficient of the macroeconomic variable GDP is positive and

statistically significant at least at 1% level using the ROA and at 5% using the ROE
for CB’s. This result is consistent with the findings of Bourke (1989), Molyneux and
Thornton (1992) and Athanasoglou et al. (2008), among others. Interestingly, the
macroeconomic variable GDP was found not to have any significant impact on
Islamic banks performance. This result is inconsistent with our finding for
conventional banks, and with the findings of Bourke (1989), Molyneux and Thornton
(1992) and Athanasoglou et al. (2008). The estimated coefficient of inflation is
negative and statistically significant using ROA and ROE for both CB and IB. This
result is consistent with the findings of Bashir and Hassan (2004) that inflation affects
profitability negatively. However, it is not consistent with Delis et al. (2009) and
Athanasoglou et al. (2005), Molyneux, and Thornton (1992) and Bourke (1989).

65
 Zeitun

The results show that CB bank profitability varies slightly by countries. Interestingly,
none of the coefficients of country dummy variables has a significant effect on bank
performance using the random effect model. However, using the OLS, only Bahrain
dummy variable was found to have a negative and significant impact on ROA, while
Saudi dummy variable was found to have a postive and significant impact on ROE.
For IB the coefficient of Saudi Arabia dummy variable is positive and significantly
affects IB’s performance. This result is consistent with our finding for conventional
banks and provides stronger evidence on country impact on banks performance.

Table 5: Estimation Results Using ROA and ROE as Dependent Variable for
Conventional Banks: Non-linear Specification for Age and Size
Independent Variables ROA ROE ROA ROE
Random-effect Random-effect OLS OLS
Model Model

7.3662 43.0458 7.18945 35.0247

Constant
(10.65)* (6)* (12.91)* (5.86)*
Bank Age2 -0.0003137 -0.00448 -0.00024 -0.00404
(-1.59) (-2.36)** (-2.07)* (-3.24)*
Equity 0.000368 0.00244 0.00047 0.0023
(4.49)* (2.74)* (5.93* (2.74)*
Size2 -0.141278 0.00887 -0.1809 0.192
(-3.37)* (0.02) (-5.3)* (0.52)
Reserve – Loan Ratio -0.0022388 -0.02796 -0.00205 -0.02413
(-6.21)* (-7.07) (-5.49)* (-6.08)*
Cost-income
-0.074801 -0.55387 -0.06282 -0.43764
(-10.09)* (-6.85)* (-8.75)* (-5.69)*
Foreign ownership
0.0038823 0.011979 -0.00016 0.012298
(0.34) (0.11) (-0.02) (0.17)
Financial development
3.78E-06 4.07E-07 6.09E-06 8.86E-06
(1.07) (0.01) (1.59) (0.22)
GDP
0.109178 0.686735 0.12553 0.762697
(4.17)* (2.37)** (4.23)* (2.4)**
Inflation
-7.829536 -47.2822 -8.60521 -59.3619
(-5.28)* (-2.94)* (-5.61)* (-3.61)*
No. of Observation 219 220 219 220
R-Square 0.56 0.43 0.57 0.4364
Wald Test 318.87* 188.22*
Huasman Test 13.47** 20.38* 19.49* 11.34*
Breusch and Pagan 36.31* 17.99*

Note: *, **, *** indicate significant at a 1%, 5%, and 10% level, respectively. t statistics are in parentheses.
Statistical significance t-statistics are determined with White (1980) standard errors to correct for
heteroskedasticity.

66
 Zeitun

Table 6: Estimation Results Using ROA and ROE as Dependent Variable for Islamic
Banks: Non-linear Specification for Age and Size

ROA ROE ROA ROE

Random-effect Random-effect OLS OLS
Model Model

Constant
7.212515 28.8127 7.212515 31.4296
(3.43)* (2.71)* (3.43)* (2.82)*
Bank Age2
0.000335 -0.018 0.000335 -0.018
(0.22) (-2.27)* (0.22) (-2.27)**
Equity
0.000481 -0.00023 0.000481 -0.00023
(1.21) (-0.11) (1.21) (-0.11)
Size2
-0.055125 1.476553 -0.05512 1.476553
(-0.52) (2.63)* (-0.52) (2.63)**
Reserve – Loan Ratio
-0.001769 -0.00998 -0.00177 -0.00998
(-1.14) (-1.21) (-1.14) (-1.21)
Cost-income
-0.119865 -0.4644 -0.11987 -0.4644
(-5.71)* (-4.17)* (-5.71)* (-4.17)
Foreign ownership
0.008972 -0.0291 0.008972 -0.0291
(0.54) (-0.33) (0.54) (-0.33)
Financial
-0.000065 -0.00032 -6.5E-05 -0.00032
development (-1.26) (-1.18) (-1.26) (-1.18)
GDP
0.068429 0.522191 0.068429 0.522191
(0.56) (0.81) (0.56) (0.81)
Inflation
-10.3223 -88.276 -10.3223 -88.276
(-1.68)*** (-2.68)* (-1.68)*** (-2.68)*
No. of Observation 66 66 66 66
R-Square 0.7 0.725 0.623 0.65
Wald Test 120.63* 133.16* 9.28* 10.24*
Huasman Test 6.22 5.36
0.4 0.469
Breusch and Pagan 0.1 0.14
0.8 0.712
Note: *, **, *** indicate significant at a 1%, 5%, and 10% level, respectively. t statistics are in parentheses.
Statistical significance t-statistics are determined with White (1980) standard errors to correct for
heteroskedasticity.

5. Conclusion
This study empirically investigated the determinants of bank’s performance for
Islamic and conventional banks in Gulf Cooperation Council (GCC) countries during
the period 2002-2009, using a cross-sectional time-series (panel data). Bank-specific
factors (internal variables), macroeconomic factors (external variables), and
ownership structure variable have been used in this study. Increasing demand for
Islamic banks services around the world, especially in GCC countries provides
motivation for the study. The first sample contains 38 conventional banks and the
second sample contains 13 conventional banks. Our results show that bank’s equity
is important in explaining and increasing CB profitability, while it is not for Islamic

67
 Zeitun

banks. The cost-income was found to have a negative and significant impact on
banks performance for Islamic and conventional banks. It is important for Islamic and
conventional banks to minimize cost-income. It reflects bank’s efficiency in using
resources that affect banks’ performance positively. Additionally, the positive and
significant effect of size provides evidence of economies of scale in banking using
ROE for Islamic banks only. However, the coefficient of size was found to have a
negative and significant impact on ROA for IB only, which is inconsistent with the
previous studies (see Eichengreen and Gibson 2001: and Delis and Papanikolaou
2009).
Foreign ownership, however, does not improve Islamic and conventional banks
performance. This supports Al-Muharrami et al. (2006) finding, that banks in Qatar,
Bahrain and Oman are operating under conditions of monopolistic competition.
Foreign ownership in GCC banks is quite small and insignificantly affects banks
decisions. Therefore, GCC countries are expected to open their market and
encourage foreign investors by liberalizing the banking sector. Bank’s age has no
significant impact on bank profitability ROA for conventional and Islamic banks
samples. Our evidence suggests that bank age does not participate in improving
performance for Islamic and conventional banks. The reserve-loan variable was
found to have a negative and significant impact on conventional banks performance
measures ROA and ROE, while it only has a negative and insignificant effect on
Islamic banks performance.

Finally, with respect to the macroeconomic variables, both GDP and inflation clearly
affect performance for both Islamic and conventional banks. The GDP is positively
correlated to profitability, while inflation is negatively correlated to bank profitability.
This finding provides evidence of a strong relationship between economic conditions
(variables) and banking sector performance. Overall, the empirical results provide
evidence that GCC banks’ performance for Islamic and conventional banks was
affected by internal factors (bank specific factors) and external factors
(macroeconomic variables), but not by foreign ownership.

Limitations and Future Research

Data collection is the main limitation for this study. Data on banking in the Middle-
East is not easily accessible or available in general. The data for this study was
obtained from BankScope and the required information was not available for all
banks. Therefore, many banks were not included in this study as they had missing
data for many years over the period of the study. Accounting standards was one of
the limitations for not including data prior to 2002. For example, the available data for
some banks was not following the accounting standards. Another limitation for this
study is that some other variables were not included to test bank profitability, such as
interest rates, total expenditure as a percentage of total assets, among other
variables.

Future studies could include more variables, such as interest rates lending and
borrowing, total deposits to different accounts (such as current, saving, investment)
as a percentage of total assets, total expenditure as a percentage of total assets,
staff expense as a percentage of total assets, among other variables. Another
possible study is the examination of the differences in the determinants of

68
 Zeitun

performance between small banks and large banks and between pure Islamic, pure
conventional and mixed (providing Islamic and conventional services).

Endnotes
i
Is a contract through which the investor provides capital to the entrepreneur to undertake a business/investment activity.
While profits are shared on a pre-agreed ratio, loss of investment is borne by the investor only.
ii
Is a contract of sale between the bank and its customer for the sale of goods at a specific price plus an agreed profit precent
for the bank.
iii
Ijarah is a financing method called leasing. It allows the bank to earn profits by charging rentals on the asset leased to the
customer such as machine, cars or medical equipment. According to Ijarah the bank remains the owners of leased assets.
iv
it is very similar to Ijarah except that the lessee can acquire ownership of the asset by making instalments payments to the
Islamic bank.
v
Is a sukuk is a financing method that is similar to a conventional bond in way that it represent debt instrument, but asset
backed. Also a sukuk represents proportionate beneficial ownership in the underlying asset. The asset will be leased to the
customer to yield the return on the investment.
vi
Is a contract made with a manufacturer, under which the manufacturer undertakes to make an item (product) on certain
conditions and at a determined price and for a fixed date of delivery. Also the Istisna’a mode can be used to finance
intangible goods such as gas and electricity for which Leasing or Instalment Sale modes are not suitable .
vii
Bourke (1989) and Molyneux and Thornton (1992) Used the consumer price index (CPI) as a proxy for
inflation.
viii
It is worth noting that adummy variable test was conducted to test for the structural differences between
Islamic and conventional banks; where CB is given 1 as group 1, and IB is given 0 as group 2. The test shows
that there is a structural difference between Islamic and conventional banks at least at 1% level.
ix
It is worth noting that reserve-loan in IB was found to have a negative and significant impact on ROE at least
at 5%, which is similar to CB before conroling for country effect.

References
Abreu, M and Mendes, V 2002, Commercial Bank Interest Margins and Profitability:
Evidence For Some E.U. Countries, University of Porto Working Paper Series,
No. 122.
Adolphud JT 2007, Monetary Policy Targets and Bank Liquidity Management
Practices in Nigeria: An Inter-Temporal Analysis, Indian journal of economy, vol.
LXXXVI
Ahmed AM and Khababa, N 1999, Performance of banking sector in Saudi Arabia,
Journal of Financial Management and Analysis, Vol. 12, No. 2, pp. 30-36.
Akhtar, MF, Ali, K and Sadaqat, S 2011, Factors Influencing the Profitability of
Islamic Banks of Pakistan, International Research Journal of Finance and
Economics Vol. 66.
Alkassim, F 2005, The Profitability of Islamic and Conventional Banking in the GCC
Countries: A Comparative Study, Working paper, 48-54.
Al-Muharrami, S, Matthews, K and Khabari, Y 2006, Market Structure and
Competitive Conditions in the Arab GCC Banking System”, Journal of Banking
and Finance, Vol. 30, No. 12, pp. 3487-3501.
Almus, M, and Nerlinger, E 1999, Growth of technology based firms: Which factors
matter?, Small Business Economics, Vol. 13, pp.141-154.
Anderson, TW and Hsiao, C 1982, Formulation and estimation of dynamic models
using panel data. Journal of Econometrics, Vol.18, pp. 67-82.
Athanasoglou, PP, Brissimis, SN and Delis, MD 2008, Bank-specific, industry specific
and macroeconomic determinants of bank profitability, International Financial
Markets, Institution and Money, Vol. 18, pp. 121–136.

69
 Zeitun

Athanasoglou, PP, Brissimis, SN and Delis, MD 2005, Bank-specific, industry specific

and macroeconomics determinants of bank profitability, Bank of Greece,
Working Paper, No. 25
Athanasoglou, PP, Delis, DM and Staikouras, CK 2006, Determinants of Bank
Profitability in The South Eastern European Region, , Working Paper, No.47.
Bashir, A, and Hassan, M 2004, Determinants of Islamic Banking Profitability,
Economic Research Forum paper, 10th Conference.
Bashir, AM 2000, Assessing the Performance of Islamic Banks: Some Evidence from
the Middle East, Paper presented at the ERF 8th meeting in Jordan. Jordan,
Amman.
Bashir, A 1999, Risk and Profitability Measures in Islamic Banks: The Case of Two
Sudanese Banks, Islamic Economic Studies , Vol. 6, No. 2, pp.1-24.
Berger, JR, Kaszovitz, B, Post, MJ and Dickinson, G 1987, Progressive multifocal
leukoencephalopathy associated with human immunodeficiency virus infection.
A review of the literature with a report of sixteen cases. Ann Intern Med 107,
78–87.
Ben Naceur, S, and Goaied, M 2001, The determinants of the Tunisian deposit
banks’ performance, Applied Financial Economics, Vol.11, pp. 317-19.
Bikker, J A, and Hu, H 2002, Cyclical Patterns in Profits, Provisioning and Lending of
Banks and Procyclicality of the New Basle Capital Requirements, BNL Quarterly
Review Vol. 221, pp. 143-175.
Bikker, JA 1999, Efficiency in the European Banking Industry: An explanation
analysis to rank countries, Research Series Supervision No. 18, De
Nederlandsche Bank.
Bourke, P 1989, Concentration and other determinants of bank profitability in Europe,
North America and Australia, Journal of Banking and Finance, Vol. 13, pp. 65-
79.
Cader, SA 2007, The glass has yet to become full. Islamic Finance News, Vol. 4, No.
20.
Chong, B and Liu, MH 2008, Islamic Banking: Interest-Free or Interest-Based?,
Pacific- Basin Finance Journal Vol.17, pp. 125-144.
Claessens, S, Djankov, S and Lang, L HP 2000, The separation of ownership and
control in East Asian corporations, Journal of Financial Economics , Vol. 58, pp.
81–112.
Delis, MD, and Papanikolaou, NI 2009, Determinants of bank efficiency: evidence
from a semi-parametric methodology, Managerial Finance, Vol. 35, No. 3, pp.
260-275
Demirgnuc- Kunt, A, and Huizinga, H 1999, Determinants of commercial bank
interest margins and profitability some international evidence, World Bank
Economic Review Vol.13, pp. 379-408.
Demsetz H, and Villalonga, B 2001, Ownership structure and corporate performance,
Journal of Corporate Finance, Vol. 7, No. 3, pp. 209–233.
Dietrich, Andreas and Wanzenried, Gabrielle, 2011, Determinants of Bank
Profitability Before and During the Crisis: Evidence from Switzerland, Journal of
International Financial Markets, Institutions and Money, Vol. 21, No. 3.
Dietrich, A, Wanzenried, G and Cole, RA 2010, Why are net-interest margins across
countries so different? Paper presented at the 2010 Annual Meeting of the
Midwestern Finance Association held February 25-27, 2010 in Las Vegas, NV,
USA.

70
 Zeitun

Eichengreen, B, and Gibson, HD 2001, Greek Banking at the Dawn of the New
Millennium” in Bryant, RC, Garganas, NC and Tavlas, GS 2001, “Greece’s
Economic Performance and Prospects”, Bank of Greece and the Brookings
Institution, pp. 545-597.
Eurasia Review 2011, Islamic Finance, www.eurasiareview.com.
General Council for Islamic Banks and Financial Institutions (CIBAFI) 2010, Islamic
Finance in GCC, http://www.cibafi.org.
Gupta, N 2005, Partial privatization and firm performance, Journal of Finance, Vol.
60, pp. 987-1015
Guru, B, Staunton, J and Balashanmugam, 2002, Determinants of commercial bank
profitability in Malaysia, University Multimedia working papers.
Halkos, G., and Salamouris, D 2004, Efficiency measurement of the Greek
commercial banks with the use of financial ratios: a data envelopment analysis
approach, Management Accounting Research, Vol. 15, pp. 201-224.
Hanif, M 2011, Differences and Similarities in Islamic and Conventional Banking,
International Journal of Business and Social Science, Vol.2, No. 2.
Hanif, M and Iqbal 2010, Islamic Financing Business Framework: A Survey.
European Journal of Social Sciences, Vol. 15, No. 4, pp. 575-489.
Haron, S 2004, Determinants of Islamic Bank Profitability, Global Journal of Finance
and Economics, Vo. 1, No. 1.
Hassan, M and Dridi, J 2010. The effects of Global Crisis on Islamic and
Conventional Banks: A Comparative Study”, IMF Working Paper WP/10/201.
Hsiu-Ling, W, Chien-Hsun, C and Fang-Ying, S 2007, The impact of financial
development and bank characteristics on the operational performance of
commercial banks in the Chinese transitional economy, Journal of Economic
Studies, Vol. 34, No. 5,pp. 401-414.
Iannotta, G, Nocera, G and Sironi, A 2007, Ownership Structure, Risk and
Performance in the European Banking Industry, Journal of Banking and
Finance, Vol. 31, pp. 2127-2149
Jensen, M, and Meckling, W 1976, Theory of the firm: managerial behavior, agency
cost and ownership structure, Journal of Financial Economics, Vol. 3, pp. 305–
360.
Kosmidou, K 2008, The determinants of banks’ profits in Greece during the period of
EU financial integration, Managerial Finance, Vol. 34, No. 3, pp. 146-159.
Masood, O, Aktan, B and Chaudhary, S 2009, An Empirical Study on Banks
Profitability in the KSA: A Co-Integration Approach, African Journal of Business
Management, Vol. 3, No. 8 August, pp. 374-382.
Micco, AU, Panizza. And Yanez, M 2007, Bank Ownership and Performance: Does
Politics Matter, Journal of Banking and Finance, Vol. 31, pp. 219-241.
Molyneux, P and Thornton, J 1992, Determinants of European bank profitability: A
note, Journal of Banking and Finance, Vol. 16, pp. 1173-1178.
New Horizon-Islamic Banking, Islamic Outperforms Conventional in UAE, 2010,
Global perspective on Islamic banking & Insurance, [online], (www.newhorizon
islamicbanking.com).
Olson, D, and Zoubi, T 2008, Using Accounting Ratio to Distinguish between Islamic
and Conventional Banks in the GCC Region, The International Journal of
Accounting Vol. 43, No. 1, pp. 45-65.

71
 Zeitun

Pasiouras, F and Kosmidou, K 2007, Factors influencing the profitability of domestic

and foreigncommercial banks in the European Union, Research in International
Business and Finance, Vol. 21, No. 2, pp. 222-237.
Perry, P 1992. Do banks gain or lose from inflation, Journal of Retail Banking, Vol.
14, No. 2, pp. 25-30.
Rasiah, D 2010, Theoretical framework of profitability as applied to commercial banks
in Malaysia, European Journal of Economics, Finance and Administrative
Sciences , Vol. 19, pp. 74-97.
Revell, J 1979, Inflation and financial institutions, Financial Times, London.
Short, B 1979, The relation between commercial bank profit rates and banking
concentration in Canada, Western Europe and Japan, Journal of Banking and
Finance, Vol. 3, No. 3, pp.209-219.
Siddiqui, A 2008, Financial contracts, risk and performance of Islamic banking,
Managerial Finance, Vol.34, No. 10, pp.680-694.
Sinkey, JF 2002, Commercial Bank Financial Management in the Financial Service
Industry, Prentice Hall Inc.
Smirlock, M 1985, Evidence On The (Non) Relationship Between Concentration and
Bank Profitability, Journal of Money Credit and Banking, Vol.17 No.1, pp.69-83.
Srairi, AS 2009, Factors influencing the profitability of conventional and Islamic
Commercial Banks in GCC Countries, Review of Islamic Economics Vol.13, No.
1, pp5-30.
Staikouras, C and Wood, G 2004. Sources of income and stability in the European
banking industry. Ekonomika Vol. 16, pp. 6-8.
Stanger, AM 2000, Determinants of Home-based Business Sales Performance,
School of Commerce Research Paper Series No: 00-18, Adelaide, Australia:
Flinders University of South Australia.
Sufian, F & Habibullah, MS 2009, Bank Specific and Macroeconomic Determinants of
Bank Profitability: Empirical Evidence from the China Banking Sector, Frontiers
of Economics in China, Vol. 4, No. 2, pp. 274-291.
Williams, B 2003, Domestic and International Determinants of Bank Profits: Foreign
Banks in Australia, Journal of Banking and Finance, Vol. 27, No. 6, pp. 1185–
1210.
Zeitun, R 2011, Moral Values and Social Responsibility in Islamic Banking and
Finance; is it Enough, why and why not?, Cultural Diversity and Dialogue-
Bridging Europe and the Arab & Muslim World Conference, June 17-19 Eger,
Hungary.
Zeitun, R 2009, Ownership Structure and Corporate Performance and Failure:
Evidence from Panel Data of Emerging Market the Case of Jordan, Corporate
Ownership & Control, Vol. 6, No. 4.

72