Abstract
Value-based banks strive to build a self-sustaining banking model with inclusive and transparent governance that is sustainable and resilient to external disturbances. Initiatives for value-based intermediation in Islamic finance started in Malaysia. The growth in VBIBs is accompanied by claims about its relative resilience to crisis and efficiency compared to VBBs and conventional banks. However, little empirical evidence is available to support such claims. This study aims to analyze the resilience and efficiency of VBIBs compared to the VBBs and GSIBs. It highlights the role of value-based strategy in developing a sound and resilient Islamic banking system to overcome future crises and further strengthen the impacts of Islamic banks. The study used quantitative and content analysis research methods, with data collected from the annual reports of 10 VBIBs from 2017 to 2020. The empirical results show that VBIBs have better risk-adjusted capital levels and asset quality, enabling them to be more resilient during crises. They provide more satisfactory returns compared to the VBBs and GSIBs. However, VBBs have a better asset structure and growth rate, which contributes to the real economy. The overall findings suggest that adopting value-based strategies in Islamic banking improve banks’ sustainability, resilience, and social impacts by concentrating resources on value-based activities that provide economic resiliency and enhance inclusive and sustainable economic growth. The study fills gaps in the current Islamic finance literature concerning empirical studies on value-based Islamic banking. It also helps practitioners to understand the relative efficiency, resilience, and social impact of VBIBs.
Highlights
The real economy serving society needs financial institutions that direct resources towards activities that provide societal empowerment, economic resiliency, and environmental regeneration [1,2,3,4]
The findings demonstrate the practices of value-based banks based on the experience of renowned impactful banks, which are members of Global Alliance for Banking on Values (GABV), and recommends lessons that Islamic banks should learn from these banks’ best practices related to designing value-based products, implementing, and monitoring
Ratio of 14.90% and a total CAR of 18.40% during the study period, which are above the required capital adequacy ratio for banks according to Basel III requirements
Summary
The real economy serving society needs financial institutions that direct resources towards activities that provide societal empowerment, economic resiliency, and environmental regeneration [1,2,3,4]. After the global financial crisis, banks’ strategies to reduce the traditional model and focus on stability can be observed. The global financial crisis forced financial institutions to revise their activities and develop more resilient and sustainable business models. Many financial institutions have reassessed and adjusted their business strategies and models, including their balance sheet structure [7]. In this regard, banking institutions, especially value-based banks, emerged with new models that uniquely positioned them to foster economic sustainability by offering more innovative and value-based financial services and products necessary to serve a broader spectrum of stakeholders [8]
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