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An Early Warning System for Islamic Banks Performance نظام الإنذار المبكر لأداء البنوك الإسلامية

Author

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  • MAHMOOD H. AL-OSAIMY

    (Economics Department - Faculty of Economics and Administration King Abdulaziz University - Jeddah - Saudi Arabia)

  • Ahmed S. Bamakhramah

    (Professor, Economics Department - Faculty of Economics and Administration King Abdulaziz University - Jeddah - Saudi Arabia)

Abstract

There is increasing demand for predicting the performane of Islamic banks due to the vital importance of any problem that may face these banks before it materializes and negatively affects their performance and their financial status. This will save on the costs of bad performance or failure to depositors, owners and the economy. Thus, a need arises for an early warning system which will identify the possible causes of bad performance, detect potential problem banks, facilitate surveilence of banks as well as reduce its costs and make possible proper timing of examining problem banks as well as scheduling the remedical procedures. This research aims at benefiting from the previous research efforts on the subject to develop a preliminary model for the prediction of the performance level of Islamic banks (i.e. an early warning system), hoping that this will be a cornerstone for further development and improvisation, specially as more information and data become available or accessible. To achieve such objective Discriminant Analysis technique will be utilized, whereby a Discriminant Function will be designed comprising the significant characteristics (financial ratios) as explanatory variables and the profitability rate as dependent variable. Discriminant scores are then extracted and used to distinguish between high performance and low performance groups of banks, thus forming a possible early warning system for the prediction of future performance of the observed banks. The prediction power of such a system is finally tested and conclusions drawn. تزايدات الحاجة إلى التوقع المبكر لأداء البنوك الإسلامية بسبب الأهمية المتنامية لمعالجة المشاكل أو الصعوبات التي يمكن أن تواجه هذه البنوك قبل أن تؤثر سلبا على مركزها المالي، حيث ستؤدي المعالجة المبكرة إلى تفادي ( أو على الأقل تخفيض ) تكلفة الأداء المتدني أو الفشل سواء للمودعين أو المالكين ( المساهمين) أو للنظام المصرفي والاقتصاد الوطني. لذا تنشأ الحاجة إلى نظام إنذار مبكر يمكنه التعرف مسبقا على المسببات المحتملة للأداء المتدني وتسهيل عملية مراقبة البنوك المتعثرة وتخفيض تكاليف هذه المراقبة وتحسين توقيت فحص ومن ثم معالجة مشاكل البنوك التي تواجه صعوبات في أدائيها. يهدف هذا البحث إلى تصميم نموذج مبدئي للتوقع المبكر لأداء البنوك الإسلامية ( نظام إنذار مبكر ) بالاستفادة من الأبحاث والدراسات السابقة التي استخدمت هذا المنهج في توقع أداء المنشآت المالية، أملا في تطوير هذا النموذج في المستقبل خاصة عندما تتوفر معلومات وبيانات أشمل. لتحقيق هدف البحث ينوي الباحثان استخدام منهج التحليل التمييزي ، حيث سيجري تصميم دالة تمييزية تشكل الخصائص المالية المؤثرة في مستوى أداء البنوك المدروسة، واستخدام أداء البيانات المجمعة عن هذه المتغيرات في استخراج نقاط المييز التي تستخدم للتمييز بين مجموعتي البنوك عالية الأداء ومنخفضة الأداء . أخيرا سيتم اختبار القدرة التوقعية للدوال المستخرجة وتحليل نتائج الاختبار وصياغة النتائج العامة للبحث.

Suggested Citation

  • MAHMOOD H. AL-OSAIMY & Ahmed S. Bamakhramah, 2004. "An Early Warning System for Islamic Banks Performance نظام الإنذار المبكر لأداء البنوك الإسلامية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 17(1), pages 3-14, January.
    • Handle: RePEc:abd:kauiea:v:17:y:2004:i:1:no:1:p:3-14
    DOI: 10.4197/islec.17-1.1
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    References listed on IDEAS

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    2. Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
    3. Scott, James, 1981. "The probability of bankruptcy: A comparison of empirical predictions and theoretical models," Journal of Banking & Finance, Elsevier, vol. 5(3), pages 317-344, September.
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    Cited by:

    1. Saiful Anwar & A.M Hasan Ali, 2018. "ANNs-BASED EARLY WARNING SYSTEM FOR INDONESIAN ISLAMIC BANKS," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 20(3), pages 1-18, January.
    2. Jaizah Othman & Mehmet Asutay, 2018. "Integrated early warning prediction model for Islamic banks: the Malaysian case," Journal of Banking Regulation, Palgrave Macmillan, vol. 19(2), pages 118-130, April.

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