Banks In Gulf Cooperation Council Countries Research Articles

Intellectual capital and bank’s performance: a cross-national approach

PurposeThis study aims to identify the impact of intellectual capital (IC) on the bank’s performance using a cross-country approach with India and Gulf Cooperation Council (GCC) countries using the Skandia navigator model (SNM).Design/methodology/approachThis study uses a mixed-methods research approach by taking financial and non-financial measures to assess the impact of the IC on the bank’s performance using the SNM. The study implies an analysis of the data from the top ten banks in India and twenty banks in GCC countries. The selection was done based on the volume of the bank’s business for three years (2019–2020, 2020–2021 and 2021–2022).FindingsThe research has three main findings: there is a positive impact of IC on the bank’s performance; amongst the factors of SNM, there is a direct impact of human capital and customer focus on the performance of the selected banks in both India and GCC countries; and the other factors of SNM such as structural capital and process focus, renewal and development focus also affect the selected banks.Research limitations/implicationsThe outcomes of the research may be useful for policymakers in India and GCC countries, as it identifies IC components that have a significant impact on the bank’s performance. This might enable them to develop policies that foster such factors, which, consequently, will improve the performance of the banks in the selected countries.Originality/valueThis study is an attempt to fill the gap in the existing literature on IC and bank’s performance for two different types of countries using the SNM.

Investigating similarities between Islamic and conventional banks in GCC countries: a dynamic time warping approach

PurposeSeveral studies have studied the points that distinguish Islamic banks from conventional ones. The corresponding conclusions are a bit contradictory. This paper aims to study the similarities between Islamic and conventional banks in the Gulf countries using a new approach, namely, the clustering method based on dynamic time warping (DTW) distance.Design/methodology/approachTo study the similarities between Islamic and conventional banks, in Gulf Cooperation Council (GCC) countries, this study used the DTW distance. Then, a clustering based on this distance was carried out to find out which banks are the most similar. Finally, the authors have studied the factors that explain these similarities.FindingsThis empirical study covered 44 Islamic banks and 46 conventional banks in GCC countries during 2006–2015. The results show that Islamic and conventional banks are included in the same cluster for Qatar, Bahrain and Oman. In contrast, Islamic and conventional banks do not share the same cluster for the Kingdom of Saudi Arabia, Kuwait and the United Arab Emirates. This is because of the establishment of interest rates below discount rates. In this case, banks are incentivized to take more risks to compensate for interest losses, which increases efficiency and allocates Islamic and conventional banks to different clusters. Accordingly, there is no absolute discrimination because of the initial status between Islamic and conventional banks. However, the overall banks, either Islamic or conventional, are discriminated through the distance of the banking applied interest rate and the social discount rate.Originality/valueDTW distance-based clustering is a very suitable method for emphasizing the similarities that may exist between conventional and Islamic banks. This technique has not previously been used in the literature in question.

Does bank governance affect risk and efficiency? Evidence from Islamic banks in GCC countries

PurposeThe motivation of the study is to shed further light on the question of whether the governance structure of Islamic banks (IBs) has an impact on the efficiency and risk of Islamic banks operating in the Gulf Cooperation Council (GCC) after the global financial crisis and during the period 2010–2018. This study aims to examine the extent of governance structure on the efficiency and risk of IBs as the effect of the financial crisis has been less on IBs. In addition, the authors are interested in the GCC region as it represents the hub of Islamic finance.Design/methodology/approachIn this study, the authors examine how the banking governance structure affects the risk-taking and performance of IBs in the GCC countries between 2010 and 2018. The authors construct a banking governance index (CGI) composed of sub-indices for the board structure, risk management, transparency and disclosure, audit committee, Sharia supervisory board and investment account holders. Unlike the majority of previous studies, bank performance is measured with technical efficiency scores using a data envelopment analysis and the authors use a comprehensive CGI.FindingsThe results show that IBs in GCC countries adhere to 54% of the attributes covered in the CGI. The authors also note a lack of disclosure regarding the investment account holders and the audit committee. As well, the results indicate that bank governance is positively associated with risk-taking and bank efficiency. Banking risk is influenced by the Sharia board and risk management while bank efficiency is affected by the characteristics of the board structure and investment account holders.Originality/valueTo the best of the authors’ knowledge, this is the first study that has developed a comprehensive governance index for IBs in GCC countries that includes a wide range of governance dimensions. The study contributes to the literature on governance in the banking sector by simultaneously examining its impact on the risk-taking and efficiency of IBs and recognizes the dynamic relation between these three variables for IB.

Efficiency Analysis of Foreign and Domestic Banks and its Determinants: Evidence from Gulf Cooperation Council (GCC) Countries

This paper aims to assess the foreign and domestic banks efficiency and its determinants in Gulf Cooperation Council (GCC) countries. In total, 50 foreign and domestic banks were examined for the period of five years from 2015- 2019. The two stage procedures approach was used by this paper to analyse banks efficiency. First input- oriented Data Envelopment Analysis model was used to analyze the efficiency scores and in the second Tobit regression model was applied to investigate the efficient drivers. Furthermore, nonparametric Kruskall-Wallis and Mann Whitney tests and the parametric (t-test) were applied to compare the efficiency between foreign and domestic banks. On average, the findings showed that many domestic and foreign banks in GCC countries were inefficient with mean efficiency scores of less than 100%. The overall banks inefficiency could be explained by managerial inefficiency in exploiting their resources to the fullest; second domestic banks groups on average were more efficient than foreign banks groups supporting home field advantage theory. Finally the multivariate regression analysis highlights that; bank size, credit risks, management quality and liquidity were the most significant efficiency drivers. The findings were useful to the regulators and bankers in GCC countries on operating performance of banking industry and its future evolution. The study results were important because the study pinpoints the drivers of efficiency and its sources of inefficiency, it would help regulator and banks with strategic planning. This will assist the countries to maintain a healthy and sustainable financial system in an economy.

Determinants of technical efficiency of Islamic banks in GCC countries

PurposeThis study aims to discuss the determinants of Islamic banks’ efficiency. It tries to explore the source of Islamic banks’ inefficiencies to propose solutions to guarantee an acceptable level of technical efficiency of such banks in Gulf Cooperation Council (GCC) countries.Design/methodology/approachTo achieve this objective, the authors use a parametric approach, especially, the stochastic frontier approach, using production function and panel data analysis. The authors apply a package Frontier 4.1 for the estimation process, which is composed of two principal steps. In the first step, the authors estimate Islamic banks’ efficiency scores in different GCC countries based on an output distance function. In the second step, the analysis highlights the impact of managerial-specific education on Islamic accounting and finance, scarcity of Sharīʿah scholars, the board independence and chief executive officers’ (CEOs) duality on GCC Islamic banks’ efficiency.FindingsThis study’s results document that managerial-specific education on Islamic accounting and finance and the board of directors’ composition, especially, the board’s independence, can largely explain the technical efficiency scores of Islamic banks in GCC countries. Especially, the authors find evidence that managerial-specific education is negatively associated with the inefficiency term. The coefficient of the Sharīʿah scholar’s variable has a positive sign indicating that the more there are Sharīʿah experts, the more the bank is efficient. In addition, CEOs’ duality seems to have no significant effect on GCC Islamic banks’ efficiency.Practical implicationsGCC Islamic banks need to improve the presence of independent members on the board of directors. In addition, these banks are invited to count more on Sharīʿah auditors and educated staff characterized by a high level of competency in the domain of Islamic banking and finance.Originality/valueTo the best of the authors’ knowledge, this is the first study that highlights the effect of managerial-specific education in Islamic accounting and finance and scarcity of Sharīʿah scholars on Islamic banks’ efficiency.

Testing dividend life-cycle theory in the Islamic and conventional banking sectors of GCC countries

Purpose This paper aims to present a comparative evaluation of the determinants affecting the likelihood of dividend payouts by Islamic and conventional banks in the Gulf Cooperation Council (GCC) countries. Design/methodology/approach The authors used the dynamic panel logit model to test dividend life-cycle theory by analyzing the determinants affecting the likelihood of dividend payouts by GCC banks. Moreover, the authors used multinomial logistic regressions to extend the results where the dependent variable is a nominal variable equal to 1 for non-payment of dividends, 2 for lower dividend payments and 3 for higher dividend payments. Findings The authors report a finding consistent with the life-cycle theory of dividends where a higher proportion of retained-earnings-to-contribution mix implies a greater likelihood of dividend payments, apart from conventional characteristics such as profitability, size and growth. However, the authors find marked differences in the magnitude and significance of the life-cycle characteristics explaining the likelihood of dividend payouts for Islamic and conventional banks. The authors also find that Islamic banks are smaller and less profitable relative to conventional banks but have higher growth rates, which helps to explain why the proportion of dividend non-payments is higher for Islamic banks than for conventional banks. The results also indicate that the higher default rates and business risk associated with GCC banks reduces their propensity to pay dividends. Practical implications The topic of dividends remains an important puzzle in the field of modern finance. The findings have significant implications for a variety of stakeholders in both Islamic and conventional banks in GCC countries, including investors, depositors, analysts, managers, regulators and stock exchanges. Originality/value This paper aims to contribute to the literature by drawing on life-cycle theory as a basis for comparing the determinants affecting the likelihood of dividend payouts by Islamic and conventional banks in the GCC countries.

Customers' preferences in selecting Islamic banks in Gulf Cooperation Council (GCC) countries

The present study aim to investigate relationship between religion, higher profitability on investment, sharia board audit, services (faster/friendly), bank reputation, product and service quality and to know which variable more influence in selecting Islamic banks in GCC countries. The study adopted convenience sampling. 101 completed questionnaires were chosen for analysis. The study found that there is no relationship in between consumer preferences and higher profitability on investment, services (faster/friendly), bank reputation, but there is, however, a significant relation with regards to religion, sharia board audit and product and service quality and paper provide fresh insights to the Islamic banks and recommendations, study implications, future research possibilities also discussed.

Do Oil Price Shocks and Other Factors Create Bigger Impacts on Islamic Banks than Conventional Banks?

The main aim of this study is to empirically examine and compares the impacts of oil price shocks, Arab revolutions, some macroeconomics, and bank-specific variables on bank profitability indicators between Conventional and Islamic banks in Gulf Cooperation Council (GCC) countries. The study employed panel Autoregressive-Distributed Lag (ARDL) techniques to examine the causal relationship both at the short and long-run. Our results reveal that most of the variables employed in our study significantly influence Return on Asset (ROA), Return on Equity (ROE), and Net Interest Margin (NIM)/ Net Profit Margin (NPM) for both Conventional Banks (CBs) and Islamic Banks (IBs) similarly in the long run. Findings from our study imply that both CBs and IBs have some similar features in nature, which could be because of the structure of the policies for IBs is in line with the regulatory framework for the CBs. The main finding from the study is the significance of oil price shock and the Arab springs that are more pronounced in CBs than IBs. Also, it can be seen that a sustainable profit of IBs is higher than CBs due to the adjustment speed of IBs to equilibrium in the presence of shock is found to be higher than CBs. Hence, our study suggests that oil price shock could be utilized for having a prudent macro regulation for the banks in GCC countries. Our findings are useful to Government officers, bankers, investors, and researchers for their decision making by estimating future trends of the profitability for both Conventional and Islamic banks in the GCC countries.

CSR Disclosure, Corporate Governance and Firm Value: a study on GCC Islamic Banks

PurposeThis study aims to explore the corporate social responsibility disclosure (CSRD) practices of the Islamic banks in the Gulf Cooperation Council (GCC) countries during the period 2010-2014 and examines the determinants of CSRD and its effects on firm value.Design/methodology/approachBased on the Accounting and Auditing Organization for Islamic Financial Institutions Governance Standard No. 7 guidelines and using content analysis, the paper develops a comprehensive CSRD index for GCC Islamic banks. The study applies ordinary least squares regression analysis for hypothesis testing and for finding determinants of respective dependent variables.FindingsThe results show a very low level of CSRD among the sample Islamic banks in GCC countries. When using corporate governance characteristics to examine the determinants of CSRD, this study provides evidence of a significant positive association between board size and CSRD practice in Islamic banks and a significant negative relationship of chief executive officer (CEO) duality with CSRD, as per expectation. For the economic consequences of CSRD, the study documents an inverse performance effect of CSRD while board size, board composition and CEO duality indicate significant positive effects on firm value.Research limitations/implicationsThe relatively small sample size of GCC Islamic banks may limit the application of the findings to other Islamic financial institutions such as Takaful and the Islamic unit trust company.Practical implicationsThe findings of this study initiate the global debate on the need for corporate governance reform in Islamic banks by providing insights on the role played by corporate governance mechanisms in encouraging and enhancing CSRD practices among Islamic banks. The findings also have important implications for investors, managers, regulatory bodies, policymakers and Islamic banks in the GCC countries.Social implicationsThe results of the study do not support the idea that Islamic banks operating on Islamic principles can meet their social responsibilities through promoting corporate social responsibility (CSR) activities and by differentiating themselves from non-Islamic banks.Originality/valueThis is the first study to examine the determinants of CSRD in GCC Islamic banks using comprehensive CSRD and corporate governance variables and, therefore, adds value to the existing CSR literature in banking.

Assessing Competitive Advantage of Banks in GCC Countries

The purpose of this paper is to assess competitive advantage gained by large-sized banks in the Gulf Cooperation Council (GCC) countries. To investigate the association between return to scale and profitability, the authors have adopted quintile and logistic regression analysis, using data for 81 and 84 banks operating in GCC countries during the years 2016 and 2015, respectively. Their findings indicate a positive association between bank size and increasing return to scale, implying that bigger banks show increasing return to scale, but with decreasing rate, as represented by the negative coefficient of the square of the asset variable. Their results also show medium and upper quintiles of profits are significantly and positively associated with assets, but negatively associated with deposits, implying banks with larger deposits are facing liability management problems. In general, these results support the evidence that large-sized banks in GCC countries are displaying competitive advantage gains over small-sized banks, but these competitive advantage gains are decreasing with bank size increase.

Corporate Governance And Bank Performance: Islamic Versus Non-Islamic Banks In GCC Countries

The literature on corporate governance at corporations and conventional banks is extensive; however, it does not assign proper weight to Islamic finance institutions despite their growing importance in the global financial system. Important questions that are still unexplored to date include: What are the attributes of the corporate governance mechanisms at Islamic finance institutions? and How do their corporate governance attributes affect their performance and risk taking behavior? To answer these questions, we use an exhaustive sample of Islamic and non-Islamic banks in the Gulf Cooperation Council (GCC) region, in the years 2007 to 2009, i.e., around the global financial crisis of 2008 which represents a natural stress test. We assess the impact of the corporate governance characteristics ownership structure / concentration, board of directors' size, composition, and independence and the effectiveness of the legal system and investor protection of the country on a wide array of bank performance indicators, including profitability, efficiency, asset quality, and risk. We perform univariate and multivariate tests which control for many potentially confounding effects. Our results show that, during the 2008 global financial crisis, the return on assets and operating income-to-total assets were significantly higher at Islamic banks compared to non-Islamic banks in the GCC region by more than 1 and 2.5 percent, respectively. Islamic banks also exhibited a more prudent risk-management behavior and higher solvency than non-Islamic banks. Moreover, consistent with the notion of the importance of corporate governance, asset-productivity at Islamic banks is significantly increasing in family- and foreign-ownership and the effectiveness of the legal system and investor protection, and it is decreasing in board size and insiders. Furthermore, risk-taking behavior at Islamic banks is decreasing in government- and family-ownership and the investor-protection level in the home country. This study has important practical implications. Investors may consider including Islamic banks in their portfolios given their resilience to the financial crisis. Non-Islamic financial institutions may consider adopting some of the features of Islamic banking into their operating models. Policy makers can use our results for better policy formulation and regulation of their financial system.

Performance differences between Islamic and conventional banking forms

This paper strives to recognize the possible performance differences between the two popular banking forms in the Gulf Cooperation Council (GCC) countries. Applying different methodologies on the data that span the period 2003–2015, this study docu¬ments significant differences with respect to the period, countries, and performance measures. Specifically, conventional banks in GCC countries outperform their Islamic counterparts in profitability. Also, bank specific factors such as liquidity, capital ad¬equacy, bank size and growth all affect the profitability. In addition, GCC conventional and Islamic banks were isolated from the 2008 subprime crisis even though their prof¬itability seems to be decayed differently over the period of the economic downturn.

Cross-country comparison of intellectual capital performance and its impact on financial performance of commercial banks in GCC countries

PurposeThe purpose of this paper is to explore the intellectual capital (IC) performance of banks in Gulf Cooperation Council (GCC) countries and to empirically investigate if IC has an impact on financial performance as well as to identify the IC components that may be the drivers of the traditional indicators of bank success.Design/methodology/approachThe empirical data are drawn from banks’ annual reports over the three-year period of 2008 to 2010. Ordinary least squares regression analysis is constructed to examine the relationships between IC and the banks’ financial performance indicators. Pulic’s value-added intellectual coefficient method (VAIC) is applied to measure IC performance.FindingsEmpirical findings, after controlling for bank size and global financial crisis, indicate that IC is positively associated with bank financial performance indicators in all GCC countries. However, when VAIC is split into its three components, the relationships between these components and bank financial performance indicators are varied.Research limitations/implicationsThe main limitation of this study is the use of IC measurement model. Its basic advantage (simplicity and ease of use) is also its main limitation. The main problem is measuring the contribution of something which is not physical and cannot be easily quantified. The key issue is that the value created by IC is indirect. However, at present, no perfect solution is available for intellectual capital measurement, as the area is still exploring the best possible solutions.Practical implicationsThe results may extend the understanding of the role of IC in banking sector in GCC region and may give inputs to managers of GCC banks to structure relevant strategies to obtain, utilize, develop and retain IC. The findings also could help policy makers in GCC to formulate and implement policies for establishing a resilient banking sector.Originality/valueThis study adds to the literature by extending the knowledge of IC performance and its utilization for increasing the financial performance of GCC banks. There has only been one previous empirical study that explores the IC and its relationship with the traditional measures of bank performance in GCC region (only in Bahrain). It is the first comparative study across GCC countries.

Has the risk index of Islamic banks and conventional banks in GCC countries changed in response to the 2008 economic crisis?

In this empirical study, we investigate the effect of the 2008 economic crisis on the level of risks Islamic banks (IB) and conventional banks (CB) are facing and the determinants of their risk indices. We cover 20 banks operating in the Gulf Cooperation Council (GCC) countries during 2001-2014. The results indicate that while the state of the economy had no effect on the risk index (RI) of banks, the type of bank did have an effect. The results suggest that the RI of IB was significantly lower than that of CB before and after the crisis indicating higher risks for IB. While the RI of CB is explained by solvency and liquidity variables, the RI of IB is explained by liquidity and profitability variables. Discussions, interpretations of research results and implications are provided.

Does country governance foster revenue efficiency of Islamic and conventional banks in GCC countries?

Purpose– The purpose of this paper is to provide new empirical evidence on the impact of country governance on the revenue efficiency of Islamic and conventional banks. The empirical analysis is confined to Islamic and conventional banks operating in the Gulf Cooperation Council (GCC) countries banking sectors during the period of 2007-2011.Design/methodology/approach– The analysis comprises two main stages. In the first stage, the authors employ the data envelopment analysis (DEA) method to compute the revenue efficiency of Islamic and conventional banks. The authors then used the multivariate panel regression analysis with the ordinary least square and generalized method of moments as an estimation method to investigate the potential determinants and the effect of country governance on the revenue efficiency.Findings– The empirical findings indicate that greater voice and accountability, government effectiveness, and rule of law enhance the revenue efficiency of both Islamic and conventional banks. The authors find that regulatory quality exerts positive influence on Islamic banks, while the impact of political stability and control of corruption enhances the revenue efficiency of conventional banks.Originality/value– The study on the specific revenue efficiency concept of Islamic and conventional banking is still in its formative stage. In regards, majority of the studies that examined the effect of governance on bank efficiency have focused more on the corporate or bank governance that affects the governance within the institution. Thus, to the best of the knowledge, no study has been done to address the effect of country governance on the revenue efficiency of Islamic and conventional banks specifically on the GCC countries.

Testing the Financial Stability of Banks in GCC Countries: Pre and Post Financial Crisis

Stability of the banking system is underpinned through an effective bank monitoring mechanism since the sector is resilient to a range of single and combined shocks. Banks financial stability in the Gulf Cooperation Council (GCC) countries was empirically assessed by using z-score as a dependent variable. A group of macro and microeconomic independent variables were selected to measure their effects on banks stability. All banks in this region that are considered Conventional or Islamic banks were selected. The targeted period was 2003-2010 to cover pre- and post- financial crisis. It was found that there is no evidence that there is a significant difference between the financial stability of Conventional and Islamic banks for the periods 2003-2010, 2003-2007, and 2008-2010. However, Conventional banks tend to be financially stronger than Islamic banks for the pre- financial crisis.

Efficiency and Stock Market Performance of Islamic Banks in GCC Countries

Using data envelopment analysis (DEA), this paper estimates the efficiency of 25 Islamic banks operating in the Gulf Cooperation Council (GCC) countries during the period 2003-2009. It also examines the relationship between the efficiency of Islamic banks and the performance of their stock. The results suggest that efficiency measures, particularly technical and pure technical efficiency, have increased over the period of study while scale efficiency remained constant. The inefficiency of Islamic banks can be attributed to pure technical inefficiency rather than to scale inefficiency. We also find that large and small banks are more efficient than medium banks in terms of overall technical efficiency. Furthermore, the empirical findings show that both technical and pure technical efficiency changes are positively related to share returns, while changes in scale efficiency have no impact on stock performance. Finally, regression also indicates a significant and positive association between market return and the book-to-market equity ratio with share prices.

Efficiency and Stock Market Performance of Islamic Banks in GCC Countries

Using Data envelopment analysis, this paper estimates the efficiency of 25 Islamic banks operating in Gulf Cooperation Council (GCC) countries during the period 2003-2009. The results suggest that efficiency measures, particularly technical and pure technical efficiency, have increased over the period of study but remain low as compared to conventional banks. The inefficiency of Islamic banks can be attributed to pure technical inefficiency rather than to scale inefficiency. We also find that large and small banks are more efficient than medium banks in terms of overall technical efficiency. Further, we also examine the relationship between the efficiency of Islamic banks and the performance of their stock. The empirical findings show that both technical and pure technical efficiency changes are positively related to share returns, while changes in scale efficiency have no impact on stock performance. Finally, the regression also indicates a significant and positive association between market return and the book-to-market equity ratio with share prices. JEL classification: C14, C23, G21.

Efficiency of Banks in GCC Countries: DEA and Bootstrap Simulation

This paper employs Data Envelopment Analysis (DEA) and bootstrap simulation to investigate the influence of some key financial ratios on technical efficiency performance of banks operating in Gulf Cooperation Council (GCC) countries. Our results indicate that the fall in technical efficiency of GCC banks in the year of international financial crisis (2008) was due to simultaneous fall in pure technical efficiency and the scale efficiency. The output loss caused by scale inefficiency (fall of scale operations below optimum level) in 2008 estimated 16 percent on average compared to 5 percent in 2007. Our findings indicate that scale efficiency is inversely related to banks' size, implying a major source of scale inefficiency in GCC banks is due to sub-optimal size of operations.