Abstract
This paper empirically analyzes the profitability of the four Islamic banks operating in the UAE during the financial period between 2004 and 2009 using three profitability indicators, return on total income, return on assets and return on equity. The researcher uses a variety of techniques, equality of means, coefficient of variation and Anova analysis to assess the effect of the financial crisis on the performance of the four specified banks. The findings show that although the financial crisis began in the 3rd quarter of 2007, its impact on the profitability of Islamic banks was most profound in 2008 and 2009 where there was a notable decline in all analyzed financial indicators. Moreover, the three indicators held a higher variability rate during the crisis years spanning 2008 to 2009 in stark contrast with the pre-crisis rates of the period spanning 2004 to 2007. Anova analysis across the four banks show significant differences between the mean of most indicators, suggesting varying performance under the adverse conditions present during the recession.
Highlights
The recent global financial crisis began in the U.S and quickly spread to other countries across the globe
The analysis of return on income across the banks reveals that Sharjah Islamic Bank obtained the highest profitability ratio with a mean of 42.63%, Dubai Islamic Bank followed second with a mean of 33.528%, Abu Dhabi Islamic Bank achieved a mean of 22.30% and Emirates Islamic Bank received a mean score of 22.27% respectively
For Dubai Islamic bank, the mean of this ratio is 37.015% before the crisis and 26.555% during the crisis. This is in accordance with the overall downward trend that was first observed with Abu Dhabi Islamic bank
Summary
The recent global financial crisis began in the U.S and quickly spread to other countries across the globe. While the more obvious effects such as the reduction in availability of credit are widely known and expected, other actions that consumers, investors, financial institutions and governments alike have taken as a response to the crisis are less widely understood. This is the case regarding investor behavior, which has seen an evolution that banks and financial institutions are ill advised to ignore, namely their receptiveness to investment opportunities through the banking system. Financial ratios are an increasingly relevant tool in examining the health of any bank or financial institution
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