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Socioeconomic Development and its Effect on Performance of Islamic Banks

Ayman Hadi
By Ayman Hadi
8 years ago
Socioeconomic Development and its Effect on Performance of Islamic Banks

Islam, Mal

Banking


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  1. Chapter 14 Socioeconomic Development and Its Effect on Performance of Islamic Banks : Dynamic Panel Approaches Mohammad Ashraful Ferdous Chowdhury, Md. Mahmudul Haque, Syed Othman Alhabshi, and Abul Mansur Mohammed Masih Abstract ,VODPLFEDQNVDUHKLJKO\LQFRUSRUDWHGZLWKVRFLDOLVVXHVEHFDXVHRIWKHLU UXOHVDQGUHJXODWLRQV3URÀWQRWRQO\GHSHQGVRQLWVRZQUHWXUQDQGLQYHVWPHQWEXW DOVRRQWUXVWPRUDOLVVXHVZKLFKPD\EHPRUHUHODWHGWREDQNLQJSURÀWDELOLW\7R test these gaps, this chapter attempts to investigate the socioeconomic factors along ZLWK EDQNVSHFLÀF IDFWRUV RI JOREDO ,VODPLF EDQNV XVLQJ G\QDPLF *00 DQG Quantile regression. The dataset used in this study involves 55 full-fledged Islamic %DQNVIURPFRXQWULHVDFURVVWKHJOREH7KHUHVXOWVVXJJHVWWKDW5HWXUQRQ$VVHWV 52$ LVVLJQLÀFDQWO\SRVLWLYHWREDQNVSHFLÀFIDFWRUVVXFKDVFUHGLWULVNKDVDQG statistically negative to cost-to-income ratio. It is also suggested that the relationVKLSEHWZHHQULVNDQGUHWXUQLVKHWHURJHQHRXVRUGLVVLPLODUDFURVVGLIIHUHQWTXDQtiles. Findings of the study tend to unravel that the socioeconomic factors especially SROLWLFDOVWDELOLW\DQGLQYHVWPHQWIUHHGRPKDYHSRVLWLYHDQGVLJQLÀFDQWUHODWLRQWR WKH,VODPLFEDQNSHUIRUPDQFH Keywords 52$‡6RFLRHFRQRPLFIDFWRUV‡&UHGLWULVN‡'\QDPLF*00‡4XDQWLOH regression 14.1 Introduction 5LVNVKDULQJLVDXQLTXHFKDUDFWHULVWLFLQWKH,VODPLFÀQDQFLDOV\VWHPWKDWSURYLGHV WKHÀQDQFLDOVWDELOLW\HQULFKHGÀQDQFLDOLQFOXVLRQOHDGLQJWRVXVWDLQDEOHGHYHORSPHQW+RZHYHUWKHLPSOHPHQWDWLRQRIWKHULVNVKDULQJFRQFHSWGHSHQGVRQDIHZ M.A.F. Chowdhury (*) INCEIF and Shahjalal University of Science and Technology, Sylhet, Bangladesh e-mail: ashraful_ferdous@yahoo.com 00+DTXH‡62$OKDEVKL‡$000DVLK INCEIF, Lorong Universiti A, Kuala Lumpur 59100, Malaysia © Springer International Publishing Switzerland 2016 M. Zulkhibri et al. (eds.), Macroprudential Regulation and Policy for the Islamic Financial Industry, DOI 10.1007/978-3-319-30445-8_14 229
  2. 230 M .A.F. Chowdhury et al. SUHUHTXLVLWHV VXFK DV WUDQVSDUHQF\ DQG DFFRXQWDELOLW\ JRRG JRYHUQDQFH FRQWDFWV enforcement, effective monitoring, well-structured economic institutions, and effiFLHQW ÀQDQFLDO PDUNHWV 8QIRUWXQDWHO\ WKH FXUUHQW VWDWH RI DIIDLUV VKRZV WKDW D PDMRULW\RIWKH2UJDQL]DWLRQRI,VODPLFFRRSHUDWLRQ 2,& FRXQWULHVGRQRWPHHW these prerequisites (Ng et al. 2015 ,WLVQRZEHLQJLQFUHDVLQJO\UHDOL]HGWKDWWKH ,VODPLFEDQNVPD\EHDQDOWHUQDWLYHWRFRQYHQWLRQDOEDQNVSDUWLFXODUO\GXULQJWKH FULVLVSHULRGVDVUHÁHFWHGLQWKHUDSLGJURZWKRI,VODPLFEDQNLQJVLQFHWKHUHFHQW ÀQDQFLDOFULVHV7KHDPRXQWRIULVNIDFHGE\EDQNVLVXVXDOO\RIJUHDWFRQFHUQWRWKH SROLF\PDNHUV 8QOLNHWKHFRQYHQWLRQDOEDQNV,VODPLFEDQNVSURPRWHULVNVKDULQJSULQFLSOHVE\ using many investment tools such as Mudarabah and Musharakah'XHWRWKHG\QDPLVPRIGLIIHUHQWFRQWUDFWVLWLVJHQHUDOO\SHUFHLYHGWKDWWKHULVNLVFRPSDUDWLYHO\ KLJKHULQ,VODPLFEDQNVFRPSDUHGWRWKHLUFRQYHQWLRQDOFRXQWHUSDUWV,WLVXVXDOO\ DUJXHG WKDW ,VODPLF %DQNV KDYH KLJKHU GHJUHH RI FUHGLW ULVNV WKDQ LQWHUHVWEDVHG EDQNVPDLQO\EHFDXVHRIWKHLUQDWXUHRIWUDGHEDVHGLQYHVWPHQW8SXQWLOQRZWKH ULVNUHWXUQUHODWLRQVKLSH[DPLQHGE\SUHYLRXVUHVHDUFKHUVZDVIRXQGWREHSRVLWLYH negative, or curvilinear (Nwude 2012 7KHUREXVWJURZWKLQÀQDQFLQJDQGLQYHVWment activities across most jurisdictions in various real sectors has helped Islamic EDQNV UHFRUG JHQHURXV DVVHW JURZWK UDWHV LQ WKHLU EDODQFH VKHHWV +RZHYHU WKH UHWXUQVEHFDPHVXEGXHGGXULQJWKHÀQDQFLDOFULVLVRI\HDUVRI²UHDFKLQJ ORZVRI52$DQG52(LQ ,)6% 6LQFH,VODPLFEDQNVDUH SDUWLFLSDWRU\EDVHGLWFRXOGEHVDLGWKDWWKLVVXEGXHG,VODPLFEDQNLQJSHUIRUPDQFH LVQRWRQO\FDXVHGE\WKHÀQDQFLDOGRZQWXUQEXWDOVRE\VRFLRHFRQRPLFLQVWDELOLW\ VXFKDV$UDE6SULQJ In any economy, socioeconomic freedom is a major dimension, which will affect EDQNSHUIRUPDQFH7KHUROHRIVRFLRHFRQRPLFIUHHGRPKDVDVVXPHGDGHYHORSPHQWDOFKDUDFWHULQFDSLWDOPDUNHWVIROORZLQJWKHOLEHUDOL]DWLRQRIVWRFNPDUNHWV,QD setting which reflects socioeconomic freedom fluctuating widely across countries, LQYHVWRUVZRUOGZLGHLQHTXLW\PDUNHWVSHUFHLYHLWDVIDVFLQDWLQJWRVSRWDWWUDFWLYH investment opportunities. Socioeconomic freedom particularly easing the regulaWRU\IUDPHZRUNKHOSVLQWHUQDWLRQDOLQYHVWRUVSHQHWUDWHLQWRGRPHVWLFPDUNHWV,WLV EURDGO\DVVHVVHGWKDWHFRQRPLFIUHHGRPLVDFUXFLDOIDFWRULQGHWHUPLQLQJWKHZHOO EHLQJDWPDVVOHYHO&RXQWULHVZLWKPRUHHFRQRPLFIUHHGRPWHQGWREHZHDOWK\DQG WKHLUÀQDQFLDOPDUNHWVWHQGWREHPRUHVWDEOHFRPSDUHGWRWKHFRXQWULHVKDYLQJD ORZHUGHJUHHRIHFRQRPLFIUHHGRP6WRFNPDUNHWVRIWKHFRXQWULHVZLWKKLJKHUHFRQRPLF IUHHGRP SHUIRUP EHWWHU DQG DUH PRUH VWDEOH &KHQ DQG +XDQJ 2009). 0HDQZKLOH6PLPRXDQG.DUDEHJRYLF 2010) have the view that financial developPHQWLVQRWGHWHUPLQHGE\FDSLWDOLVP SUR[\RIHFRQRPLFIUHHGRPUHPDUNDEO\IUHH PDUNHWV\VWHP UDWKHULWLVDSUHFRQGLWLRQIRUEDQNLQJSHUIRUPDQFHDQGGHYHORSPHQW0RUHVSHFLÀFDOO\WKLVJURZWKOLWHUDWXUHSRLQWVRXWWKDWVWDEOHDQGSUHGLFWDEOH rule of law, good enforcement of contracts, protection of individual and investment IUHHGRPODERUPRYHPHQWDQGSURSHUW\ULJKWVVRXQGPRQH\DQGVRRQDUHWKHNH\V to economic progress. 'HVSLWHWKHVLJQLÀFDQWGHYHORSPHQWRIDOO,VODPLFEDQNVZRUOGZLGHWKHUHZHUH UHODWLYHO\IHZHPSLULFDOZRUNVRQ,VODPLFEDQN·VSHUIRUPDQFHZKLFKLVTXLHWLQLWV LQIDQF\7RGDWHHPSLULFDOVWXGLHVRQWKHSHUIRUPDQFHRIWKHEDQNLQJVHFWRULQERWK
  3. 14 Socioeconomic Development and Its Effect on Performance of Islamic Banks … 231 the developed and developing countries are mostly focused on the conventional LQWHUHVW EDVHG EDQNLQJ V\VWHP DQG WKHUH KDV EHHQ DOPRVW QR FRQFOXVLYH UHVHDUFK GRQHRQWKHSHUIRUPDQFHRIWKH,VODPLFEDQNLQJVHFWRUIURPWKHSRLQWRIYLHZRI EDQNVSHFLÀFGHWHUPLQDQWVDQGVRFLRHFRQRPLFIUHHGRPGHWHUPLQDQWV7KLVFKDSWHU VHHNVWRÀOOLQWKHJDSVE\DGGUHVVLQJWKHIROORZLQJREMHFWLYHV  WRÀQGWKHLPSDFW RIEDQNVSHFLÀFYDULDEOHVDQGVRFLRHFRQRPLFIUHHGRPRQ,VODPLFEDQNV·SURÀWDELOLW\ DQG   WR ÀQG ZKHWKHU ULVNUHWXUQ UHODWLRQVKLS DFURVV GLIIHUHQW SHUFHQWLOHV LV VLPLODURUQRWLQWHUPVRIEDQNVSHFLÀFDQGVRFLRHFRQRPLFIUHHGRPYDULDEOHV 14.2 Literature Review 7UDGLWLRQDOO\ VWXGLHV RQ ,VODPLF EDQN SHUIRUPDQFH KDYH IRFXVHG RQ WKHRUHWLFDO LVVXHVZKLOHHPSLULFDOZRUNVKDYHUHOLHGPDLQO\RQWKHDQDO\VLVRIWKHGHVFULSWLYH studies rather than rigorous statistical estimations (El‐*DPDODQG,QDQRJOX2005). 6LPLODU WR FRQYHQWLRQDO EDQNV UHVHDUFKHUV KDYH IRFXVHG RQ WKH GHWHUPLQDQWV RI EDQNSHUIRUPDQFHLQWHUPVRISURÀWDELOLW\DQGHIÀFLHQF\7KHPDMRULW\RIVWXGLHV FOXVWHUV WKH GHWHUPLQDQWV RI EDQNV ÀQDQFLDO SHUIRUPDQFH LQWR WZR W\SHV +DURQ  ÀUVWO\WKHH[WHUQDORUPDFURHFRQRPLFIDFWRUVWKDWDUHFRQVLGHUHGWREHDZD\ IURPWKHFRQWURORIEDQNDGPLQLVWUDWLRQVXFKDVJURVVGRPHVWLFSURGXFWFRQYHQWLRQDO EDQNV LQWHUHVW UDWHV FRPSHWLWLRQ UHJXODWLRQ FRQFHQWUDWLRQ PDUNHW VKDUH RZQHUVKLS DQG LQÁDWLRQ ,Q WKH OLWHUDWXUH HPSLULFDO VWXGLHV RQ SURÀWDELOLW\ RI ,VODPLFEDQNVKDYHSDLGDWWHQWLRQRQVSHFLÀFDQGVRPHFRQFHQWUDWHGRQWKHSDQHORI FRXQWULHV7KHVWXGLHVXVHGLQWKHOLWHUDWXUHDLPHGDWH[SODLQLQJWKHSURÀWDELOLW\RI ,VODPLF EDQNV LQFOXGHV 0DOD\VLD $VPD HW DO 2011 $KPDG DQG $KPDG ), ,QGRQHVLD $VXWD\ DQG ,]KDU   %DKUDLQ (J\SW 6XGDQ DQG 6DXGL $UDELD $O-DUUDKDQG0RO\QHX[2003 7KHVHVWXGLHVLQVSHFWWKHSURÀWDELOLW\GHWHUPLQDQWV RI,VODPLFEDQNV 6HFRQGO\ WKHUH DUH LQWHUQDO IDFWRUV RU WKH EDQNVSHFLÀF YDULDEOH VXFK DV WKH OLTXLGLW\FUHGLWULVNRSHUDWLRQDOHIÀFLHQF\DQGFDSLWDODGHTXDF\RIWKHEDQNVDUH DOVRFRQVLGHUHGLQQXPEHURIVWXGLHVSHUVSHFWLYH,Q,VODPLFEDQNLQJLQGXVWU\LWLV XVXDOO\ DUJXHG WKDW EDQNV KDYH KLJKHU GHJUHH RI FUHGLW ULVNV WKDQ LQWHUHVWEDVHG EDQNVPDLQO\EHFDXVHRIWKHLUQDWXUHRIWUDGHEDVHGLQYHVWPHQW7KHUDWLRRIORDQ SURYLVLRQVWRWRWDOORDQV //37/ LVLQFRUSRUDWHGDVDQLQGHSHQGHQWYDULDEOHLQWKH UHJUHVVLRQDQDO\VLVDVDSUR[\RIFUHGLWULVN7KHFRHIÀFLHQWRI//37/LVH[SHFWHG WR EH QHJDWLYH EHFDXVH EDG ORDQV UHGXFH EDQN SURÀWDELOLW\ ,Q WKHVH GLUHFWLRQV Miller and Noulas ( VXJJHVWWKDWWKHJUHDWHUWKHÀQDQFLDOLQVWLWXWLRQVH[SRVXUH WRZDUGV KLJK ULVN ORDQV WKH KLJKHU ZRXOG EH WKH DFFXPXODWLRQ RI XQSDLG ORDQV UHVXOWLQJLQDORZHUSURÀWDELOLW\0RUHRYHUWKHFRHIÀFLHQWRI//37/LVH[SHFWHGWR EHQHJDWLYHEHFDXVHEDGORDQVDUHOLNHO\WRGHFUHDVHSURÀWDELOLW\ ,QDGGLWLRQWRWKLVWKHWRWDOFRVWRIDEDQNFDQEHGLYLGHGLQWRRSHUDWLQJFRVWDQG RWKHU H[SHQVHV LQFOXGLQJ WD[HV GHSUHFLDWLRQV HWF  7KH FRVWWRLQFRPH UDWLR LV XVHGWRSURYLGHLQIRUPDWLRQRQWKHYDULDWLRQRQWKHEDQNRSHUDWLQJFRVWV7KLVYDULDEOHLQFOXGHVRSHUDWLQJFRVWVVXFKDVVDODU\ZDJHVDQGEUDQFKRSHUDWLQJH[SHQVHV 7KH UHODWLRQVKLS EHWZHHQ WKH FRVWV WR LQFRPH LV H[SHFWHG WR EH UHYHUVH EHFDXVH
  4. 232 M .A.F. Chowdhury et al. EDQNVWKDWDUHPRUHSURGXFWLYHDQGHIÀFLHQWVKRXOGNHHSWKHLURSHUDWLQJFRVWORZ %HQ1DFHXUDQG*RDLHG ) and Hassan and Bashir (2003) have found a positive LPSDFWRQWKHSHUIRUPDQFHRIWKH,VODPLFEDQNVZKHUHDV.RVPLGRXHWDO 2005) KDYHIRXQGDQHJDWLYHUHODWLRQWRWKHSHUIRUPDQFHRIWKHEDQNV 0RUHRYHU D VWXG\ FRQGXFWHG E\ $KPDG DQG $KPDG ) on Malaysian ,VODPLFEDQNVFUHGLWULVN7KHVWXG\FRQFOXGHVWKDWDVVHWVVL]HULVN\DVVHWVUDWLR DQG,VODPLFEDQNVPDQDJHPHQWHIÀFLHQF\HIIHFWZHUHIRXQGVWDWLVWLFDOO\VLJQLÀFDQWRQ ,VODPLFEDQNVFUHGLWULVN,QWKH0LGGOH(DVWDVWXG\FRQGXFWHGE\%DVKLU 2003) H[DPLQHGWKHLQWHUQDOYDULDEOHVDQGHFRQRPLFHQYLURQPHQWLPSDFWRQWKHSHUIRUPDQFHRI,VODPLFEDQNV7KHVWDWLVWLFDOO\VLJQLÀFDQWDQGSRVLWLYHUHODWLRQVKLSZDV IRXQGEHWZHHQFDSLWDODGHTXDF\DQGSURÀWDELOLW\RI,VODPLFEDQNV7KHUHVHDUFKHU DOVRFRQFOXGHGIURPWKHVWXG\WKDWIRUHLJQHUVRZQHG,VODPLFEDQNVKDYHDELOLW\WR DWWDLQKLJKHUSURÀWUDWLRWKHQWKHEDQNVORFDOO\RZQHG7KHSRVLWLYHLPSDFWDQGVWDWLVWLFDOO\VLJQLÀFDQWUHODWLRQVKLSRILQÁDWLRQZDVDOVRIRXQGRQWKHSURÀWDELOLW\RI 0LGGOH(DVW,VODPLFEDQNV )URPWKHVRFLRHFRQRPLFSHUVSHFWLYHVWKHUHKDYHEHHQDQXPEHURIVWXGLHVZKLFK H[SORUHWKDWVRFLRHFRQRPLFIUHHGRPLQÁXHQFHVHFRQRPLFJURZWK +HFNHOPDQDQG .QDFN2009$OWPDQ3RZHOO2002$GNLQVHWDO20025HHGRPDQG5RZWK 2000  7KH ÀQGLQJV IURP PRVW RI WKH VWXGLHV UHYHDO WKDW WKHUH H[LVWV D SRVLWLYH LPSDFWRIYDULRXVPHDVXUHVRIHFRQRPLFIUHHGRPRQHFRQRPLFJURZWK5HPDUNDEO\ DEVHQWLQWKHOLWHUDWXUHLVDQH[DPLQDWLRQRIWKHOLQNVEHWZHHQHFRQRPLFIUHHGRP DQG EDQN SHUIRUPDQFH 7KH OLPLWHG UHVHDUFK LQ WKLV DUHD LV VRPHZKDW VXUSULVLQJ JLYHQWKHLPSRUWDQFHRIEDQNVSHFLÀFIDFWRUVLQSURPRWLQJHFRQRPLFGHYHORSPHQW (Chinn and Ito /HYLQHDQG=HUYRV) and the impact of socioeconomic IUHHGRPLVDOVROLNHO\WRKDYHHIIHFWRQWKHEDQNLQJVHFWRU$GGLWLRQDOO\RQWKHHFRQRPLFIUHHGRPLQGH[HVH[WHQVLYHHPSLULFDOVWXGLHVKDYHEHHQSURGXFHG &KRUWDUHDV et al. 2013). While Sala-i-Martin et al. (2013) consider the effects of economic freedom on inequality, and consider income convergence aggregate productive effiFLHQF\,QGH[HVRIHFRQRPLFIUHHGRPKDYHDOVREHHQXVHGDVH[SODQDWRU\YDULDEOHV LQÀQDQFLDOHFRQRPLFV 5R\FKRXGKXU\DQG/DZVRQ2010-RQHVDQG6WURXS2010) FKDUDFWHUL]LQJWKHHIIHFWVRIWKHUHFHQWJOREDOUHFHVVLRQ *LDQQRQHHWDO2011). 7KHUHKDYHEHHQDQH[WHQVLYHQXPEHURIUHVHDUFKHVWKDWFRQVLGHUWKHHIIHFWVRI WKHHFRQRPLFIUHHGRPLQGH[HVRQYDULRXVDVSHFWVRIWKHHFRQRP\DQGIRXQGWKH HYLGHQFHWKDWHFRQRPLHVHQMR\LQJDKLJKGHJUHHRIHFRQRPLFIUHHGRPFDQRQEDODQFHDFKLHYHEHWWHUHFRQRPLFRXWFRPHV,QWKHÀQDQFLDOHFRQRPLFVDQGEDQNLQJ OLWHUDWXUHWKHLQGH[HVRIHFRQRPLFIUHHGRPKDYHEHHQXVHGDVFRQWUROYDULDEOHVLQ YDULRXV FRQWH[WV 5R\FKRXGKXU\ DQG /DZVRQ 2010 -RQHV DQG 6WURXS 2010). A QXPEHURIVWXGLHVKDYHDOUHDG\LQFOXGHGLQGLFDWRUVWKDWH[DPLQHWKHGHJUHHRIÀQDQFLDOOLEHUDOL]DWLRQ/D3RUWDHWDO 2000 GRHVQRWGLUHFWO\DFFRXQWIRUEDQNLQJVHFWRU·V HIÀFLHQF\ EXW LQFOXGH WUDGLWLRQDO LQGLFDWRUV RI FRPPRQ ODZ FUHGLWRU ULJKWV UXOH RI ODZ DQG ÀQG WKDW FRXQWULHV ZLWK PRUH UREXVW LQYHVWRU SURWHFWLRQ ZKHUH DJHQF\FRVWVDUHUHVWULFWHGE\WKHODZ KDYHODUJHUFDSLWDOPDUNHWV7KH´UXOHRIODZµ KDVEHHQDOVRXVHGWRFDSWXUHWKHHIIHFWVRIVHYHUHHQIRUFHPHQWSUDFWLFHVIRUDQ\ given level of creditors or shareholders protection. In contrast, Fries and Taci (2005) FRQVLGHUWKHUROHRIEDQNLQJVHFWRUUHIRUPDQGOLEHUDOL]DWLRQLQWKHWUDQVLWLRQFRXQWULHVWRFDSWXUHWKHHIIHFWRQEDQNFRVWHIÀFLHQF\
  5. 14 Socioeconomic Development and Its Effect on Performance of Islamic Banks … 233 While most of the research has highlighted the growth of the Islamic financial LQGXVWU\DQGWKHGHWHUPLQDQWVRIVXFKJURZWKUREXVWIXUWKHUVWXG\LVHVVHQWLDOIRUWKH potential and growth of the industry. To that effect, there is a strong demand to put the IXWXUHSURVSHFWVIRUWKHLQGXVWU\·VGHYHORSPHQWZLWKLQWKHRYHUDOOFRQWH[WRIÀQDQFLDO DQGLQVWLWXWLRQDOGHYHORSPHQWHVSHFLDOO\LQWKHPHPEHUVWDWHVRIWKH2,&FRXQWULHV 7KHÀQGLQJVRIWKHVWXG\DGGQHZGLPHQVLRQLQWKH,VODPLFEDQNLQJLQGXVWU\ 14.3 Data and Methodology 14.3.1 Data Collection 7RFRQGXFWWKLVUHVHDUFKZRUNGDWDRI,VODPLFEDQNVKDVEHHQFROOHFWHGIURP FRXQWULHV WKURXJK %DQNVFRSH :RUOG %DQN DQG ,0) UHVHDUFK GDWDEDVH RYHU WKH SHULRG ² 7KH ÀQDQFLDO VWDWHPHQWV RI ,VODPLF EDQNV RSHUDWLQJ LQ WKHVH FRXQWULHVDUHFROOHFWHGIRUP%DQNVFRSHGDWDEDVHRI%XUHDX9DQ'LMN&RPSDQ\7KH VRFLRHFRQRPLF GDWD VXFK DV 5XOH RI ODZ SURSHUW\ ULJKWV FRUUXSWLRQ LQYHVWPHQW IUHHGRPDQGSROLWLFDOVWDELOLW\KDVEHHQFROOHFWHGIURP:RUOG%DQNDQG,0)ÀQDQFLDOVWDWLVWLFV ,)6 GDWDEDVH 7DEOH). 14.3.2 Methodology 7KH PHWKRGRORJLHV DSSOLHG LQ WKLV VWXG\ DUH ERWK VWDWLF PRGHO ZKLFK KDYH EHHQ XVHGLQQXPHURXVVWXGLHVDQGWKHG\QDPLFRQHEDVHGRQ%HUJHU 1995) and more UHFHQWO\*RGGDUGHWDO ) and Athanasoglou et al. ( $V0DPDW]DNLVDQG 5HPRXQGRV 2003) argue dynamic model uses more information and consequently WKHGHWHUPLQDQWIDFWRUVZLOOEHHVWLPDWHGPRUHHIÀFLHQWO\,QWKLVVWXG\ERWKVWDWLF and dynamic models are applied. Table 14.1 9DULDEOHGHVFULSWLRQ 9DULDEOH 35 CPI 6= //5*/ 'HÀQLWLRQ 3URÀWDELOLW\RIEDQNV &RUUXSWLRQSHUFHSWLRQLQGH[ %DQNVL]H &UHGLWULVN 32/6 IF 35 &,5 3ROLWLFDOVWDELOLW\ Investment freedom Property rights Cost-to-income ratio 'HVFULSWLRQ 5HWXUQRQDVVHWV 52$ 5DQJHVIURPWR Natural log of total asset /RDQORVVSURYLVLRQ*URVVORDQIRUHDFK\HDU averaged 5DQJHVIURPï ZHDN WR VWURQJ 7KH,QYHVWPHQWIUHHGRPLQGH[ ² 7KHSURSHUW\ULJKWVLQGH[ ² It refers the operational efficiency of a firm
  6.  M.A.F. Chowdhury et al. 14.3.3 Static Models (Fixed and Random Effects) 7KHSDQHOGDWDLVXVHGLQDQDO\]LQJWKHEDQN·VSRUWDELOLW\GHWHUPLQDQWV,QWKHSDQHO data, the used model consists nFURVVVHFWLRQDOXQLWVGHQRWHGE\n = 1, NREVHUYHG at each of T time periods, t = 1, …, T,QGDWDVHWWKHWRWDOREVHUYDWLRQLVn × T. 7KHEDVLFIUDPHZRUNIRUWKHSDQHOGDWDLVGHÀQHGDVSHUWKHIROORZLQJUHJUHVVLRQ model: Ynt = a + b X nt + e nt  ZKHUHWKHGHSHQGHQWYDULDEOH 3URÀWDELOLW\ LVGHQRWHGE\ynt. Intercept term used is GHQRWHGE\αRQWKHH[SODQDWRU\YDULDEOHVβ is a kðYHFWRURISDUDPHWHUWREH HVWLPDWHGDQGYHFWRURIREVHUYDWLRQVLVXnt which is 1 × k, t = 1, … , Tn = 1, … N. The econometric specifications: ROA = a + b 1 CIR + b 2 LTA + b 3 LLRGL + b 4 COR + b 5 IFL + b 6 PR + e  where YLVUHWXUQRQDVVHWV 52$ &,5LVFRVWWRLQFRPHUDWLR/7$LVQDWXUDOORJ RI WRWDO DVVHWV //5*/ LV ORDQ ORVV UHVHUYH RYHU JURVV ORDQ &25 LV FRUUXSWLRQ 32/6LVSROLWLFDOVWDELOLW\,),LVLQYHVWPHQWIUHHGRP35LVSURSHUW\ULJKWVDQGε is error term. 14.3.4 Dynamic GMM Models ,Q EDQNLQJ OLWHUDWXUH À[HG DQG UDQGRP HIIHFWV PRGHOV DUH XVXDOO\ HPSOR\HG IRU SDQHO GDWD +RZHYHU LW LV DUJXHG WKDW SHUVLVWHQFH RI EDQN SURÀWDELOLW\ RYHU WLPH FRXOGDIIHFWQH[W\HDU·VSURÀW $WKDQDVRJORXHWDO). As a result a difficulty DULVHV ZLWK WKHVH PRGHOV ZKHQ D ODJJHG GHSHQGHQW YDULDEOH RU SRVVLEO\ RWKHU UHJUHVVRU  LV FRQFHUQHG SDUWLFXODUO\ LQ WKH FRQWH[W RI YHU\ IHZ WLPH SHULRGV DQG PDQ\REVHUYDWLRQV 1LFNHOO). To address this issue, Arellano and Bond (1991) GHYHORSWKHGLIIHUHQFH*00PRGHOE\GLIIHUHQFLQJDOOUHJUHVVRUVDQGHPSOR\LQJ *00 +DQVHQ). Arellano and Bover (1995) and Blundell and Bond (2000) augment the differHQFH*00PRGHOE\GHYHORSLQJWKHV\VWHP*00HVWLPDWRUZKLFKLQFOXGHVODJJHG OHYHOVDVZHOODVODJJHGGLIIHUHQFHV7KHV\VWHP*00HVWLPDWRUDVVXPHVWKDWÀUVW GLIIHUHQFHV RI LQVWUXPHQWDO YDULDEOHV DUH XQFRUUHODWHG ZLWK WKH À[HG HIIHFWV ,W DOORZV WKH LQWURGXFWLRQ RI PRUH LQVWUXPHQWV DQG FDQ VXEVWDQWLDOO\ LPSURYH HIÀFLHQF\ 5RRGPDQ   DPRQJ RWKHUV DUJXHV WKDW ERWK GLIIHUHQFH DQG V\VWHP *00HVWLPDWRUVDUHVXLWDEOHIRUVLWXDWLRQVZLWK´VPDOO7ODUJH1µSDQHOVLQGHSHQGHQWYDULDEOHVWKDWDUHQRWVWULFWO\H[RJHQRXVÀ[HGLQGLYLGXDOHIIHFWVKHWHURVNHGDVWLFLW\ DQG DXWRFRUUHODWLRQ DPRQJ LQ WKLV VWXG\ LQGLYLGXDO EDQNV +RZHYHU WKH GLIIHUHQFH *00 HVWLPDWRUV FDQ EH VXEMHFW WR VHULRXV ÀQLWH VDPSOH ELDVHV LI WKH
  7. 14 Socioeconomic Development and Its Effect on Performance of Islamic Banks … 235 LQVWUXPHQWVXVHGKDYHQHDUXQLWURRWSURSHUWLHV8VHRIWKHV\VWHP*00UHVXOWVLQ QRWDEO\ VPDOOHU ÀQLWH VDPSOH ELDV DQG PXFK JUHDWHU SUHFLVLRQ ZKHQ HVWLPDWLQJ autoregressive parameters using persistent series (Bond 2002). In addition, The *00 V\VWHP FRQWUROV IRU XQREVHUYHG KHWHURJHQHLW\ DQG IRU SHUVLVWHQFH RI WKH GHSHQGHQWYDULDEOH7KHIROORZLQJIRUPXODIRU*00SURSRVHGE\$WKDQDVRJORX et al. () is used to conduct the empirical analysis: j =1 m =1 j m II t = C + d II i , t -1 + å b j X j it + å b j X m it + e it  where IItLVWKHSUREDELOLW\RIEDQNi at time t where i = 1 … N, t = 1, C is the Constant Term. II i ,t -1 LVWKHODJYDOXHRIGHSHQGHQWYDULDEOHXitLVWKHH[SODQDWRU\YDULDEOHV and εitWKHGLVWXUEDQFHWHUPZLWKvitWKHXQREVHUYHGEDQNVSHFLÀFHIIHFWDQGuit the idiosyncratic error. This is a one-way component regression model, where vet ~ IIN (0, σv2) and independent of uit ~ (0, σu2). The XitLVJURXSHGLQWREDQNVSHFLÀFXjit and PDFURHFRQRPLFYDULDEOHXmit. 14.3.5 Quantile Regression (QR) Model 7KLVVWXG\HPSOR\VD45PRGHOLQZKLFKWKHSDUDPHWHURIH[SODQDWRU\YDULDEOHV FDQEHH[SUHVVHGDVDPRQRWRQHIXQFWLRQRIDVLQJOHVFDODUUDQGRPYDULDEOH7KH PRGHOFDSWXUHVV\VWHPDWLFLQÁXHQFHVRIFRQGLWLRQLQJYDULDEOHVRQORFDWLRQVFDOH DQGVKDSHRIWKHFRQGLWLRQDOGLVWULEXWLRQRIWKHUHVSRQVH7KHPRGHOLVWKXVVLJQLÀFDQWO\H[WHQGHGZLWKDFRQVWDQWFRHIÀFLHQWLQZKLFKWKHHIIHFWVRIFRQGLWLRQLQJDUH confined to a location shift. Furthermore, this study reveals that traditional optimi]DWLRQWHFKQLTXHVLQFOXGLQJ2/6DQG/$'GLVUHJDUGGLIIHUHQWEHKDYLRUVLQWKHWDLO UHJLRQVRIEDQNSURÀWDELOLW\GLVWULEXWLRQVDQGWKHULVN²UHWXUQUHODWLRQVKLSVLQEDQNV FKDQJHLQWKHWDLOUHJLRQV)ROORZLQJWKLVOLQHRIWKRXJKWD45WHFKQLTXHGHYHORSHG E\.RHQNHUDQG%DVVHWW  LVXVHGLQWKLVVWXG\WRH[DPLQHWKHG\QDPLFUHODWLRQVKLSEHWZHHQWKHULVNDQGEDQNSURÀWDELOLW\SHUIRUPDQFH Assuming that the θWKTXDQWLOHRIWKHFRQGLWLRQDOGLVWULEXWLRQRIWKHH[SODLQHG YDULDEOHLVOLQHDULQx where Quant XiWKHFRQGLWLRQDO45PRGHOFDQEHH[SUHVVHG as follows: Yi = x ’i × bq + uq i Quantq ( yi | xi ) = inf { y : Fi ( y | x )q } = x ’i × bq  Quantq ( uq i | xi ) = 0 where Quantθ (yi│xi) represents the θ the conditional quantile of yi on the regressor vector xiβθLVWKHXQNQRZQYHFWRURISDUDPHWHUVWREHHVWLPDWHGIRUGLIIHUHQWYDOXHV of θLQ  uθiLVWKHHUURUWHUPDVVXPHGWREHFRQWLQXRXVO\GLIIHUHQWLDEOHFGI (cumulative density function) of F i(y│x)θ and a density function F i(y│x)θ.
  8.  M.A.F. Chowdhury et al. The value Fi(y│x)θ GHQRWHV WKH FRQGLWLRQDO GLVWULEXWLRQ RI y conditional on x. 9DU\LQJWKHYDOXHRIuIURPWRUHYHDOVWKHHQWLUHGLVWULEXWLRQRIy conditional on x. The estimator for uLVREWDLQHGIURP i :u >= 0 min åq x uq + i :u <= 0 n = å å 1-q x uq i n q x yi - x ’i × bq + i : yi - x ’i . b >= 0 å (1 - q ) x | yi - x ’i × bq  i : yi - x ’i . b <= 0 14.4 Results and Discussion 14.4.1 Descriptive Study 7RDQDO\]HWKHUHVXOWRIWKHVWXG\ÀUVWLWLVXVHIXOWRFRPPHQWRQVRPHSUHOLPLQDU\ IHDWXUHVRIRXUGDWD7DEOHVKRZVGHVFULSWLYHVWDWLVWLFVIRUWKHSURÀWDELOLW\ 52$  DQGWKHEDQNVSHFLÀ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less than the standard level. Table 14.2 'HVFULSWLYHVWDWLVWLFV Mean Median 0D[ Min. 6WG'HY 6NHZQHVV Kurtosis 2EV 52$    ï 3.39320 ï  220 &,5    10.5000    220 LTA     1.55505 ï  220 //5*/  3.55500 100.000 0.00000    220 &25    ï    220 32/6 ï ï  ï  ï  220 IF   90.000 0.0000    220 35  50.000 90.000 10.000    220 Notes7KHGHSHQGHQWYDULDEOH52$LVFDOFXODWHGDVQHWSURÀWGLYLGHGE\WRWDODVVHWV&,5³WKH FRVWWRLQFRPHUDWLRLVXVHGDVDSUR[\IRURSHUDWLQJHIÀFLHQF\//5*/LVDPHDVXUHRIFUHGLWULVN FDOFXODWHGDVWKHUDWLRRIWRWDOORDQORVVSURYLVLRQVE\*URVVORDQ/2*7$LVDSUR[\PHDVXUHRI VL]HFDOFXODWHGDVDQDWXUDOORJDULWKPRIWRWDOEDQNDVVHWV32/PHDVXUHVWKHSROLWLFDOVWDELOLW\,) LQGLFDWHVWKH,QYHVWPHQWIUHHGRPDQG35UHIHUVWKH3URSHUW\ULJKWV
  9. 14  Socioeconomic Development and Its Effect on Performance of Islamic Banks… 14.4.2 Correlation Matrix $FFRUGLQJWR7DEOHWKHORDQORVVSURYLVLRQWRJURVVUHYHQXHVVHHPVWREHQHJDWLYHO\FRUUHODWHGZLWKWKHSURÀWDELOLW\PHDVXUHLQGLFDWLQJWKDWZKHQWKHORDQORVV SURYLVLRQV LQFUHDVH SURÀWDELOLW\ PRYHV WR WKH RSSRVLWH GLUHFWLRQ E\ ï $V H[SHFWHG FRVWWRLQFRPH UDWLR RYHUKHDG H[SHQVHV  LV QHJDWLYHO\ FRUUHODWHG ZLWK SURÀWDELOLW\ZLWKDFRUUHODWLRQRIï&RQWLQXLQJWRWKHFRUUHODWLRQVRIEHWZHHQ WRWDODVVHWVDQG52$LVSRVLWLYHO\FRUUHODWHGZLWKE\2QWKHRWKHUKDQG VRFLRHFRQRPLFYDULDEOHVVXFKDV&RUUXSWLRQSROLWLFDOVWDELOLW\LQYHVWPHQWIUHHGRP DQGSURSHUW\ULJKWVDUHQHJDWLYHO\UHODWHGWR52$$ZLWKïïï DQGïUHVSHFWLYHO\)LQDOO\VLQFHWKHUHLVQRYDOXHPRUHWKDQZHFDQ VD\WKDWWKHUHVKRXOGQRWEHDQ\PXOWLFROOLQHDULW\ 14.4.3 Empirical Findings Before estimating the static and dynamic model in panel techniques, this study H[DPLQHVWKHSDQHOXQLWURRWWHVWDQGSDQHOFRLQWHJUDWLRQWHVW,WKDVEHHQIRXQGWKDW GDWDDUHQRQVWDWLRQDU\DWWKHOHYHOIRUPDQGLWEHFRPHVVWDWLRQDU\DIWHUXVLQJÀUVW OHJ,WLVDOVRIRXQGWKDWUHODWLRQVKLSVDPRQJYDULDEOHVDUHQRWVSXULRXV 6LQFHWKHSUREDELOLW\RI&KLVTXDUHYDOXH  RI+DXVPDQWHVWZLWK3YDOXH WKLVFKDSWHUZLOOJLYHPRUHIRFXVRQUDQGRPHIIHFW+HUH7DEOH provides the estimation results of the random effect model. We can see that although variDEOHVOLNHFRUUXSWLRQDQGSURSHUW\ULJKWVDUHLQVLJQLÀFDQWQRZH[KLELWPRUHLQWXLWLYHO\SODXVLEOHSRVLWLYHGLUHFWLRQRILQÁXHQFH(YHQWKRXJKWKHRYHUDOO3URWHFWLQJ ,QYHVWRUV,QGH[UHWDLQVSRVLWLYHVLJQWKUHHRILWVVHYHQFRPSRQHQWVQRZKDYHQHJDWLYH HIIHFW 7KH QH[W FUHGLW ULVN SURFHGXUHV H[KLELW SRVLWLYH VLJQ FRQÀUPLQJ WKH Table 14.3 &RUUHODWLRQPDWUL[ 52$$ &,5 LTA //5*/ &25 32/6 IF 35 52$$ 1.0000 ï  ï ï ï ï ï &,5 LTA //5*/ &25 32/6 IF 35 1.0000 ï  0.2309    1.0000 ï   ï  1.0000 ï ï 0.0211 ï 1.0000  0.3993  1.0000  0.5519 1.0000  1.0000 Notes7KHGHSHQGHQWYDULDEOH52$LVFDOFXODWHGDVQHWSURÀWGLYLGHGE\WRWDODVVHWV&,5³WKH FRVWWRLQFRPHUDWLRLVXVHGDVDSUR[\IRURSHUDWLQJHIÀFLHQF\//5*/LVDPHDVXUHRIFUHGLWULVN FDOFXODWHGDVWKHUDWLRRIWRWDOORDQORVVSURYLVLRQVE\*URVVORDQ/2*7$LVDSUR[\PHDVXUHRI VL]HFDOFXODWHGDVDQDWXUDOORJDULWKPRIWRWDOEDQNDVVHWV32/PHDVXUHVWKHSROLWLFDOVWDELOLW\,) LQGLFDWHVWKH,QYHVWPHQWIUHHGRPDQG35UHIHUVWKH3URSHUW\ULJKWV
  10.  M.A.F. Chowdhury et al. Table 14.4 Model estimations )L[HGHIIHFWV  ² 5DQGRP effects 1.1915 ² First step GLIIHUHQFHG*00   Second step GLIIHUHQFHG*00 ï  ï  ï ï ï ï ï  ²   ï  ï  ï  ²    ï ï    ² χ2  3URE!χ2   $5  WHVW F VWDW  ² ï  ï ï    ² χ2  3URE!χ2   ² $5  WHVW ² ² 1RREVHUYDWLRQV 220 220 Z  p  Z  p = 0.5190 220 Z  p  Z  p  220 9DULDEOHV Intercept 52$$³ODJRI GHSHQGHQWYDULDEOH LTA //5*/ &,5 &25 32/6 35 IF 5VTXDUHG Sagan test F-stat/Wald-χ2 Notes7KHGHSHQGHQWYDULDEOH52$LVFDOFXODWHGDVQHWSURÀWGLYLGHGE\WRWDODVVHWV&,5³WKH FRVWWRLQFRPHUDWLRLVXVHGDVDSUR[\IRURSHUDWLQJHIÀFLHQF\//5*/LVDPHDVXUHRIFUHGLWULVN FDOFXODWHGDVWKHUDWLRRIWRWDOORDQORVVSURYLVLRQVE\*URVVORDQ/2*7$LVDSUR[\PHDVXUHRI VL]HFDOFXODWHGDVDQDWXUDOORJDULWKPRIWRWDOEDQNDVVHWV32/PHDVXUHVWKHSROLWLFDOVWDELOLW\,) LQGLFDWHV WKH ,QYHVWPHQW IUHHGRP DQG 35 UHIHUV WKH 3URSHUW\ ULJKWV 9DOXHV LQ SDUHQWKHVLV DUH t VWDWLVWLFV  DQG LQGLFDWHVLJQLÀFDQFHDWDQGOHYHOUHVSHFWLYHO\ WKHRUHWLFDOSUHGLFWLRQV)LQDOO\SROLWLFDOVWDELOLW\DQGLQYHVWPHQWIUHHGRPRIVRFLRHFRQRPLFIUHHGRPLQGLFDWRUVUHYHDOQHJDWLYHHIIHFWVRQEDQNLQJSHUIRUPDQFH 2QWKHRWKHUKDQGFRVWWRLQFRPHUDWLRLVKLJKO\QHJDWLYHO\VLJQLÀFDQWZKLFKLV FRQÀUPHGE\WKHWKHRUHWLFDOSUHGLFWLRQ,WLVIRXQGQHJDWLYHDQGVLJQLÀFDQWLPSDFWRQ WKHSURÀWDELOLW\RI,VODPLFEDQNVHYHQDWVLJQLÀFDQWOHYHOLQDOOWKHDERYHPRGHOV $LQFUHDVHVLQWKHFRVWRIWKH,VODPLFEDQNPD\UHGXFH52$RI,VODPLF EDQNV 5HIHUULQJ WR WKH LPSDFW RI FUHGLW ULVN LW LV IRXQG SRVLWLYH DQG VLJQLÀFDQW LPSDFWRQWKHSURÀWDELOLW\RI,VODPLFEDQNVHYHQDWVLJQLÀFDQWOHYHOLQDOOWKH DERYHPRGHOV7KLVUHVXOWLPSOLHVWKDWLQFUHDVH GHFUHDVH LQWKLVFUHGLWULVNLQFUHDVH GHFUHDVH WKHSURÀWVRI,VODPLFEDQNVRSHUDWLQJLQWKH,VODPLFEDQNLQJVHFWRU $VDOUHDG\GLVFXVVHGWKHHVWLPDWRUVRIWKLVPRGHOVWLOOVXIIHUIURPELDVGXHWRWKH ODFNRIG\QDPLFUHODWLRQVKLSEHWZHHQODJJHGGHSHQGHQWYDULDEOH6LQFH*00FDQ VROYHRQO\WKH´À[HGHIIHFWµSUREOHPEXWÀ[LQJWKHSUREOHPRI´FRUUHODWLRQEHWZHHQ WKH ODJJHG GHSHQGHQW YDULDEOH DQG WKH HUURU WHUPµ DQG ´WKH HQGRJHQHLW\ RI VRPH H[SODQDWRU\YDULDEOHVµSUREOHPVWKLVVWXG\DSSOLHGWKHVWHSDQGVWHSGLIIHUHQFHG *00 7KH QH[W WZR FROXPQV RI WKH WDEOH VKRZ ÀQGLQJV RI *00 HVWLPDWLRQV
  11. 14 Socioeconomic Development and Its Effect on Performance of Islamic Banks … 239 &ROXPQIRXUGHVFULEHVUHVXOWVRIGLIIHUHQFH*00HVWLPDWLRQ$OORIWKHLQGLFDWRUV KDYHVLJQLÀFDQWH[SODQDWRU\SRZHUPRUHRYHUWKHVLJQVRIWKHHVWLPDWHVPRVWO\FRQform to its theoretical predictions almost in every case. 7KHVHUHVXOWVFRQÀUPWKHWKHVLVRISRVLWLYHLQÁXHQFHRILQVWLWXWLRQDOYDULDEOHVRQ the financial sector. Therefore, we can infer that institutional quality, including speFLÀFEDQNGHWHUPLQDQWVDQGEURDGHUVRFLRHFRQRPLFIUHHGRPLQGLFDWRUVDUHVLJQLÀFDQWGHWHUPLQDQWVRIEDQNSHUIRUPDQFHOHYHO,WVKRXOGDOVREHPHQWLRQHGWKDWWKH HVWLPDWRUV KDUGO\ UHPDLQ LQ WKH ERXQGDU\ EHWZHHQ 5DQGRP (IIHFWV DQG )L[HG (IIHFWV ,Q WKH QH[W VWHS VWHS GLIIHUHQFH *00 HVWLPDWLRQV DUH XVHG IRU PRUH DFFXUDWHUHVXOWVDQGLQIHUHQFH2YHUDOOXVLQJERWKÀUVWGLIIHUHQFHDQGVHFRQGGLIIHUHQFH*00PHWKRGVWKLVFKDSWHUÀQGVWKDWWKHYDULDEOHVH[KLELWFRUUHFWGLUHFWLRQRI influence. The magnitudes of which are not overly sensitive to change in specificaWLRQVEHWZHHQÀUVWGLIIHUHQFHDQGVHFRQGGLIIHUHQFH*00 14.4.4 Quantile Regression 7DEOHOLVWVWKHHVWLPDWLRQUHVXOWVRIWKH45PRGHOIRUWKHLPSDFWRIWKHEDQN VSHFLÀFYDULDEOHVDQGVRFLRHFRQRPLFYDULDEOHVRQWKH52$)RUFRPSDULVRQWKH 2/6HVWLPDWHVDUHDOVRSUHVHQWHG+HUHERWK2/6DQGWKHTXDQWLOHUHJUHVVLRQDW WKUHHGLIIHUHQWTXDQWLOHKDYHEHHQVWXGLHG,QWHUHVWLQJO\WKHUHVXOWRI2/6YDULHVDW different percentile especially loan-loss reserve and total assets, etc. The result indiFDWHVWKDWDVPRUHULVNVDUHWDNHQE\DEDQNPRUHPRQH\FRXOGEHPDGH+RZHYHU WKH2/6HVWLPDWRUE\IRFXVLQJRQO\RQWKHFHQWUDOWHQGHQF\RIWKHGLVWULEXWLRQV Table 14.5 Quantile regression at different percentiles LTA //5*/ &,5 &25 32/6 35 IF _cons 2/6BUHV EVH   ï 0.052 ï  ï ï p < 0.01 Q25_res EVH  0.000 ï ï ï  ï ï Q50_res EVH 0.090    ï  ï 1.519 p < 0.001 4BUHV EVH 0.090  ï  ï 0.030 ï 2.010 Notes7KHGHSHQGHQWYDULDEOH52$LVFDOFXODWHGDVQHWSURÀWGLYLGHGE\WRWDODVVHWV&,5³WKH FRVWWRLQFRPHUDWLRLVXVHGDVDSUR[\IRURSHUDWLQJHIÀFLHQF\//5*/LVDPHDVXUHRIFUHGLWULVN FDOFXODWHGDVWKHUDWLRRIWRWDOORDQORVVSURYLVLRQVE\*URVVORDQ/2*7$LVDSUR[\PHDVXUHRI VL]HFDOFXODWHGDVDQDWXUDOORJDULWKPRIWRWDOEDQNDVVHWV32/PHDVXUHVWKHSROLWLFDOVWDELOLW\,) LQGLFDWHV WKH ,QYHVWPHQW IUHHGRP DQG 35 UHIHUV WKH 3URSHUW\ ULJKWV 9DOXHV LQ SDUHQWKHVLV DUH W VWDWLVWLFV  DQG LQGLFDWHVLJQLÀFDQFHDWDQGOHYHOUHVSHFWLYHO\
  12.  M.A.F. Chowdhury et al. 1 0 .2 .4 .6 Quantile .8 1 0 .2 .4 .6 Quantile .8 1 0 .2 .4 .6 Quantile .8 1 0 .2 .4 .6 Quantile .8 1 0 .2 .4 .6 Quantile .8 1 0 .2 .4 .6 Quantile .8 1 0 .2 .4 .6 Quantile .8 1 COR -6.00 -4.00 -2.00 0.00 2.00 4.00 POLS -4.00-2.000.00 2.00 .8 LLRGL -0.10 0.00 0.10 0.20 LTA -2.00 -1.00 0.001.002.003.00 .4 .6 Quantile IF -0.30-0.20 -0.100.000.10 Intercept CIR .2 -0.06-0.04-0.020.00 0 -0.20 0.00 0.20 0.40 PR -40.00 -20.00 0.0020.00 40.00 GRHVQRWDOORZWKHLPSDFWRIWKH//5*/RQEDQNSURÀWDELOLW\WRGLIIHUIRUPRUHOHVV SURÀWDEOHEDQNV%\FRQWUDVWWKHTXDQWLOHYDU\LQJHVWLPDWHVRIWKH//5*/YDULDEOH GHULYHGE\WKH45PRGHODVVKRZQLQ7DEOHUHYHDOFRQVLGHUDEOHYDULDWLRQLQ VL]HVLJQLÀFDQFHDQGHYHQLQVLJQ,QSDUWLFXODUE\XVLQJWKHOHYHORIVLJQLÀFDQFHDVDFULWHULRQZKLOHWKH//5*/YDULDEOHLVDVVRFLDWHGZLWKDQLQVLJQLÀFDQW FRHIÀFLHQWDWWKHFHQWUDOTXDQWLOHVIURPSHUFHQWLOHLWEHFRPHVDVLJQLÀFDQWO\ SRVLWLYH QHJDWLYH  FRHIÀFLHQW DW KLJKHU ORZHU  TXDQWLOH OHYHOV IURP  WR  ²  2QWKHRWKHUKDQGWKHEDQNVL]H /7$ YDU\LQJDWGLIIHUHQWSHUFHQWLOHDVVKRZQ LQ7DEOHUHYHDOVFRQVLGHUDEOHYDULDWLRQLQVL]HVLJQLÀFDQFHDQGHYHQLQVLJQ ,QSDUWLFXODUE\XVLQJOHYHORIVLJQLÀFDQFHDVDFULWHUDWLRQLWKDVEHHQIRXQG that the co-efficient of LTA is statistically significant only at 25 percentile whereas 2/6IRXQGWKDW/7$KDVDSRVLWLYHLPSDFWRQWKHSHUIRUPDQFHRIWKH,VODPLFEDQNV DWOHYHORIVLJQLÀFDQFH 6XEVHTXHQWO\ )LJXUH  GHSLFWV WKH 45 HVWLPDWHV DQG WKH 2/6 HVWLPDWHV $SSDUHQWO\DVPRYLQJXSWKHEDQNSURÀWDELOLW\TXDQWLOHVOHYHOVWKH45HVWLPDWHV YDULHVZLGHO\0RUHRYHUDFRPSDULVRQRIWKH45HVWLPDWHVZLWKWKHWUDGLWLRQDO2/6 HVWLPDWHV LQGLFDWHV WKDW WKH 2/6 HVWLPDWHV XQGHUHVWLPDWH WKH SRVLWLYH ULVN²UHWXUQ UHODWLRQVKLS DW WKH KLJKHU TXDQWLOH OHYHOV DQG REWDLQ WKH ZURQJ FRQFOXVLRQ DW WKH lower quantiles. Figure SUHVHQWVWKHUHJUHVVLRQOLQHVGHULYHGE\WKH45DJDLQVW WKH2/6PHWKRGV+HUHLWFDQEHVHHQWKDWWKH//5*//7$DQG&,5YDULHVDWGLIferent percentile. Fig. 14.1 5HJUHVVLRQOLQHV45YV2/6IRUGLIIHUHQWYDULDEOHV
  13. 14 Socioeconomic Development and Its Effect on Performance of Islamic Banks …  7KLV ÀQGLQJ UHTXLUHV VRPH H[SODQDWLRQV ,Q WKHRU\ D EDQN WDNLQJ D UHODWLYHO\ KLJKULVNLVVXSSRVHGWRHDUQKLJKSURÀWVEXWLVDOVRH[SRVHGWRFHUWDLQFRVWVWKHUHIRUHLWVSURÀWDELOLW\PLJKWEHUHGXFHG,QSDUWLFXODUEDQNUXSWF\FRVWVPD\EHUHODWLYHO\KLJKIRUDEDQNPDLQWDLQLQJKLJKHUULVNH[SRVXUH$VXEVHTXHQWLQFUHDVHLQ ULVN WDNLQJ VKRXOG OHDG WR D GHFUHDVH LQ SURÀWDELOLW\ E\ KHLJKWHQLQJ LQVXUDQFH H[SHQVHV RQ XQLQVXUHG GHEW 2XU HPSLULFDO ÀQGLQJV VKRZ WKDW KLJKO\ SURÀWDEOH EDQNVFDQLQFUHDVHWKHLUSURÀWDELOLW\E\WDNLQJPRUHULVNVE\FRQWUDVWWKHVXSHULRU SROLF\LQOHVVSURÀWDEOHEDQNVLVWRGHFUHDVHUDWKHUWKDQLQFUHDVHWKHLUULVNH[SRVXUHV)RUEDQNVL]HLWFDQH[SODLQWKDWDFFRUGLQJWRGLVHFRQRPLHVRIVFDOHWKHVL]H RIDEDQNFRXOGEHQHJDWLYHUHODWHGWRWKHSHUIRUPDQFHGXHWRWKHPDUJLQDOFRVW 7KHUHIRUHWKHVL]HDQGWKHSHUIRUPDQFHRI,VODPLFEDQNVDUHQRWOLQHDUDWGLIIHUHQW percentile. From the socioeconomic perspectives, the results are consistent in most RIWKHYDULDEOHVH[FHSWSROLWLFDOVWDELOLW\DQGSURSHUW\ULJKWV7KHUHDVRQVIRUWKLV YDULDWLRQDWGLIIHUHQWVFDOHFRXOGEHGXHWRLWVVL]HDQGFXVWRPHULQYROYHPHQWVLQFH ZKHQWKHVL]HRIWKHEDQNDWDVPDOOVFDOHWKHHIIHFWRIWKHSURÀWDELOLW\PLJKWEHOHVV WKDQDODUJHVFDOHEDQN 14.5 Conclusion Islamic finance is in a unique position to offer an alternative to the present interestUDWHEDVHGGHEWÀQDQFLQJUHJLPHWKDWKDVEURXJKWLQGLYLGXDODQGJOREDOHFRQRPLHV to a series of crisis and lopsided prosperity. The core principle of Islamic finance is ULVNVKDULQJ5LVNVKDULQJLVWUXVWLQWHQVLYH7UXVWLVHQKDQFHGE\HIIHFWLYHLQVWLWXWLRQV(IIHFWLYHLQVWLWXWLRQVDUHDOVRNH\WRVXVWDLQHGDQGMXVWHFRQRPLFGHYHORSPHQW DQGJURZWK8QIRUWXQDWHO\WRGD\·V0XVOLPFRXQWULHVDUHLQVWLWXWLRQDOO\GHÀFLHQW +RZHYHUWKHFRUHSULQFLSOHVRI,VODPSURYLGHEHWWHUURDGPDSIRUUHIRUPVDQGLQVWLWXWLRQEXLOGLQJ ,QWKLVVWXG\LWKDVEHHQH[DPLQHGWKDWWKHOHYHORIHFRQRPLFIUHHGRPFRXOGPDWWHUVWURQJO\IRUEDQNLQJSHUIRUPDQFHDQGFUHGLWULVN7RLQYHVWLQSRWHQWLDOPDUNHW WKHLQGH[RIHFRQRPLFIUHHGRPFDQEHDSSOLHGWRVL]HXSDQHFRQRP\7KLVVWXG\ XVHGFRXQWULHVRYHU²WRVHHKRZEDQNVFRXOGSHUIRUPDORQJZLWKWKH LQGH[DVZHOODVDEUHDNGRZQRILWVLQGLYLGXDOFRPSRQHQWV2QWKHFRQWUDU\WKHUH ZHUH VRPH VNHWFK\ HYLGHQFHV WKDW VKRZHG WKDW HFRQRPLF IUHHGRP H[HUWV KXJH LPSDFWRQEDQNSHUIRUPDQFH,QDGGLWLRQEDQNVSHFLÀFGHWHUPLQDQWVDOVRH[KLELW PHDVXUDEOHHIIHFWVRQEDQNSHUIRUPDQFH In contrast, there is clear evidence that showed that less government intervenWLRQSURPRWHVEDQNSHUIRUPDQFHVWDELOLW\LQD0XVOLPFRXQWU\7KLVLQIHUHQFHLV VXSSRUWHGE\WKHUHVXOWVEDVHGRQDJJUHJDWHPHDVXUHPHQWRIVRFLRHFRQRPLFIUHHGRPDQGEDQNVSHFLÀFYDULDEOHV7KLVVWXG\IRXQGWKDWJUHDWHUHFRQRPLFIUHHGRP GHOLYHUVLQYHVWRUVZLWKEHWWHUPHDQYDULDQFHLQYHVWPHQWHIÀFLHQF\)URPWKHEDQN VSHFLÀFYDULDEOHVLWKDVEHHQIRXQGWKDWWKHUHODWLRQVKLSEHWZHHQULVNDQGUHWXUQ LV KHWHURJHQHRXV RU GLVVLPLODU DFURVV GLIIHUHQW TXDQWLOHV PHDQLQJ WKDW LI EDQN FRXOGWDNHPRUHULVNVWKHQKLJKO\SURÀWDEOHEDQNVFDQLQFUHDVHWKHLUSURÀWDELOLW\
  14.  M.A.F. Chowdhury et al. ,Q FRQWUDVW D EHWWHU SROLF\ LQ OHVVSURÀWDEOH EDQNV LV WR GHFUHDVH UDWKHU WKDQ LQFUHDVHWKHLUULVNH[SRVXUH)LQDOO\WKLVFKDSWHUVXJJHVWVWKDWSROLF\PDNHUVXFK DVEDQNPDQDJHPHQWUHJXODWRUVDQGLQYHVWRUVVKRXOGIROORZWKHKROLVWLFDSSURDFK VXFKDVFRQVLGHULQJERWKWKHVRFLRHFRQRPLFIDFWRUVDQGWKHEDQNVSHFLÀFIDFWRUV together. References $GNLQV/&0RRPDZ5/6DYYLGHV$  ,QVWLWXWLRQVIUHHGRPDQGWHFKQLFDOHIÀFLHQF\6RXWK (FRQ-  ² $KPDG1+$KPDG61  .H\IDFWRUVLQÁXHQFLQJFUHGLWULVNRI,VODPLFEDQND0DOD\VLDQ FDVH-0XDPDODW,VODP)LQDQF5HV  ² $O-DUUDK,0RO\QHX[3  (IÀFLHQF\LQ$UDELDQEDQNLQJ3DSHUSUHVHQWHGDWWKH,QWHUQDWLRQDO &RQIHUHQFHRQ)LQDQFLDO'HYHORSPHQWLQ$UDE&RXQWULHV$EX'KDEL8$( $OWPDQ0  +RZPXFKHFRQRPLFIUHHGRPLVQHFHVVDU\IRUHFRQRPLFJURZWK"7KHRU\DQG HYLGHQFH(FRQ%XOO  ² Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and DQDSSOLFDWLRQWRHPSOR\PHQWHTXDWLRQV5HY(FRQ6WXG  ² $UHOODQR 0 %RYHU 2   $QRWKHU ORRN DW WKH LQVWUXPHQWDO YDULDEOH HVWLPDWLRQ RI HUURU FRPSRQHQWVPRGHOV-(FRQ  ² $VPD , )DGOL $ 1RRU 7   'HWHUPLQDQWV RI ,VODPLF EDQNLQJ LQVWLWXWLRQ·V SURÀWDELOLW\ LQ 0DOD\VLD:RUG$SSO6FL-  ² $VXWD\0,]KDU+  (VWLPDWLQJWKHSURÀWDELOLW\RI,VODPLFEDQNLQJHYLGHQFHIURP%DQN 0XDPDODW,QGRQHVLD5HY,VODP(FRQ  ² $WKDQDVRJORX33%ULVVLPLV61'HOLV0'  %DQNVSHFLÀFLQGXVWU\VSHFLÀFDQGPDFURHFRQRPLFGHWHUPLQDQWVRIEDQNSURÀWDELOLW\-,QW)LQDQF0DUN,QVW0RQH\  ² %DVKLU $+0   'HWHUPLQDQWV RI SURÀWDELOLW\ LQ ,VODPLF EDQNV VRPH HYLGHQFH IURP WKH 0LGGOH(DVW,VODP(FRQ6WXG  ² %HQ1DFHXU6*RDLHG0  7KHGHWHUPLQDQWVRIFRPPHUFLDOEDQNLQWHUHVWPDUJLQDQGSURÀWDELOLW\HYLGHQFHIURP7XQLVLD)URQW)LQDQF(FRQ  ² %HUJHU$1  7KHUHODWLRQVKLSEHWZHHQFDSLWDODQGHDUQLQJVLQEDQNLQJ-0RQH\&UHGLW%DQN   ² %OXQGHOO5%RQG6  *00HVWLPDWLRQZLWKSHUVLVWHQWSDQHOGDWDDQDSSOLFDWLRQWRSURGXFWLRQIXQFWLRQV(FRQ5HY  ² %RQG65  '\QDPLFSDQHOGDWDPRGHOVDJXLGHWRPLFURGDWDPHWKRGVDQGSUDFWLFH3RUW (FRQ-  ² &KHQ &5 +XDQJ <6   (FRQRPLF IUHHGRP HTXLW\ SHUIRUPDQFH DQG PDUNHW YRODWLOLW\ ,QW -$FFRXQW,QI0DQDJ  ² &KLQQ0',WR+  &XUUHQWDFFRXQWEDODQFHVÀQDQFLDOGHYHORSPHQWDQGLQVWLWXWLRQVDVVD\LQJWKHZRUOG´VDYLQJJOXWµ-,QW0RQH\)LQDQF  ² &KRUWDUHDV*(*LUDUGRQH&9HQWRXUL$  )LQDQFLDOIUHHGRPDQGEDQNHIÀFLHQF\HYLGHQFH IURPWKH(XURSHDQ8QLRQ-%DQN)LQDQF  ² El‐*DPDO0$,QDQRJOX+  ,QHIÀFLHQF\DQGKHWHURJHQHLW\LQ7XUNLVKEDQNLQJ² -$SSO(FRQ  ² )ULHV67DFL$  &RVWHIÀFLHQF\RIEDQNVLQWUDQVLWLRQHYLGHQFHIURPEDQNVLQSRVW FRPPXQLVWFRXQWULHV-%DQN)LQDQF  ² *LDQQRQH'/HQ]D05HLFKOLQ/  0DUNHWIUHHGRPDQGWKHJOREDOUHFHVVLRQ,0)(FRQ5HY   ² *RGGDUG - 0RO\QHX[ 3 :LOVRQ -2   '\QDPLFV RI JURZWK DQG SURÀWDELOLW\ LQ EDQNLQJ -0RQH\&UHGLW%DQN  ²
  15. 14 Socioeconomic Development and Its Effect on Performance of Islamic Banks …  +DQVHQ /3   /DUJH VDPSOH SURSHUWLHV RI JHQHUDOL]HG PHWKRG RI PRPHQWV HVWLPDWRUV (FRQRPHWULFD  ² +DURQ6  'HWHUPLQDQWVRI,VODPLFEDQNSURÀWDELOLW\*ORE-)LQDQF(FRQ  ² +DVVDQ 0. %DVKLU $+0   'HWHUPLQDQWV RI ,VODPLF EDQNLQJ SURÀWDELOLW\ ,Q WK (5) DQQXDOFRQIHUHQFH0RURFFRSS² +HFNHOPDQ -& .QDFN 6   $LG HFRQRPLF IUHHGRP DQG JURZWK &RQWHPS (FRQ 3ROLF\   ² ,VODPLF)LQDQFLDO6HUYLFHV%RDUG  $QQXDOUHSRUWKWWSZZZLIVERUJVHFSKS. Accessed 2FW -RQHV6.6WURXS0'  &ORVHGHQGFRXQWU\IXQGSUHPLXPVDQGHFRQRPLFIUHHGRP$SSO )LQDQF(FRQ  ² .RHQNHU5%DVVHWW*-U  5HJUHVVLRQTXDQWLOHV(FRQRPHWULFD  ² .RVPLGRX.7DQQD63DVLRXUDV)  'HWHUPLQDQWVRISURÀWDELOLW\RIGRPHVWLF8.FRPPHUFLDOEDQNVSDQHOHYLGHQFHIURPWKHSHULRG²,Q0RQH\0DFURDQG)LQDQFH 00)  5HVHDUFK*URXSFRQIHUHQFHYROSS² .RVPLGRX.  7KHGHWHUPLQDQWVRIEDQNV·SURÀWVLQ*UHHFHGXULQJWKHSHULRGRI(8ÀQDQFLDO LQWHJUDWLRQ0DQDJ)LQDQF  ² /D3RUWD5/RSH]'H6LODQHV)6KOHLIHU$9LVKQ\5  ,QYHVWRUSURWHFWLRQDQGFRUSRUDWH JRYHUQDQFH-)LQDQF(FRQ  ² /HYLQH 5 =HUYRV 6   6WRFN PDUNHWV EDQNV DQG HFRQRPLF JURZWK $P (FRQ 5HY   ² 0DPDW]DNLV(&5HPRXQGRV3&  'HWHUPLQDQWVRI*UHHNFRPPHUFLDOEDQNVSURÀWDELOLW\ ²6SRXGDL  ² 0LOOHU601RXODV$*  3RUWIROLRPL[DQGODUJHEDQNSURÀWDELOLW\LQWKH86$$SSO(FRQ   ² 1J$,EUDKLP00LUDNKRU$  2QEXLOGLQJVRFLDOFDSLWDOIRU,VODPLFÀQDQFH,QW-,VODP 0LGGOH(DVW)LQDQF0DQDJ  ² 1LFNHOO6  %LDVHVLQG\QDPLFPRGHOVZLWKÀ[HGHIIHFWV(FRQRPHWULFD  ² 1ZXGH(&  7KHFUDVKRIWKH1LJHULDQVWRFNPDUNHWZKDWZHQWZURQJWKHFRQVHTXHQFHV DQGWKH3DQDFHD'HY&RXQWU\6WXG  ² Powell B (2002) Economic freedom and growth: the case of the Celtic tiger. Cato -  ² 5HHGRP &) 5RZWK (&*   (FRQRPLF IUHHGRP DQG HFRQRPLF JURZWK D VKRUW UXQ FDXVDO LQYHVWLJDWLRQ-$SSO(FRQ  ² 5RRGPDQ'  +RZWRGR[WDERQGDQLQWURGXFWLRQWRGLIIHUHQFHDQGV\VWHP*00LQ6WDWD &HQWHU IRU *OREDO 'HYHORSPHQW :RUNLQJ 3DSHU   &HQWHU IRU *OREDO 'HYHORSPHQW :DVKLQJWRQ'& 5R\FKRXGKXU\6/DZVRQ5$  (FRQRPLFIUHHGRPDQGVRYHUHLJQFUHGLWUDWLQJVDQGGHIDXOW ULVN-)LQDQF(FRQ3ROLF\  ² 6DODL0DUWLQ;%LOEDR2VRULR%%ODQNH-+DQRX]0'*HLJHU75.R&6FKZDE.  7KH JOREDO FRPSHWLWLYHQHVV LQGH[ ² VXVWDLQLQJ JURZWK EXLOGLQJ UHVLOLHQFH 7KH JOREDO FRPSHWLWLYHQHVVUHSRUW:RUOG(FRQRPLF)RUXP*HQHYD 6PLPRX . .DUDEHJRYLF $   2Q WKH UHODWLRQVKLS EHWZHHQ HFRQRPLF IUHHGRP DQG HTXLW\ UHWXUQVLQWKHHPHUJLQJPDUNHWVHYLGHQFHIURPWKH0LGGOH(DVWDQG1RUWK$IULFD 0(1$  VWRFNPDUNHWV(PHUJ0DUN5HY  ²