The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1746-8809.htm

Displaced
Management and monitoring of commercial
the displaced commercial risk: risk

a prescriptive approach
Othmane Touri, Rida Ahroum and Boujemâa Achchab
LAMSAD, École Nationale des Sciences Appliquées Berrechid, Berrechid, Morocco
Received 31 July 2018
Revised 9 March 2019
26 May 2019
Abstract 4 September 2019
Purpose – The displaced commercial risk is one of the specific risks in the Islamic finance that creates a Accepted 2 December 2019
serious debate among practitioners and researchers about its management. The purpose of this paper is to
assess a new approach to manage this risk using machine learning algorithms.
Design/methodology/approach – To attempt this purpose, the authors use several machine learning
algorithms applied to a set of financial data related to banks from different regions and consider the deposit
variation intensity as an indicator.
Findings – Results show acceptable prediction accuracy. The model could be used to optimize the prudential
reserves for banks and the incomes distributed to depositors.
Research limitations/implications – However, the model uses several variables as proxies since data
are not available for some specific indicators, such as the profit equalization reserves and the investment
risk reserves.
Originality/value – Previous studies have analyzed the origin and impact of DCR. To the best of authors’
knowledge, none of them has provided an ex ante management tool for this risk. Furthermore, the authors
suggest the use of a new approach based on machine learning algorithms.
Keywords Risk management, Machine learning, Deposit variation intensity, Displaced commercial risk,
Prudential reserves
Paper type Research paper

1. Introduction
A commercial pressure between Islamic and conventional banks characterizes the dual
banking market. In fact, conventional deposits are considered as loans because depositors
receive an interest agreed in advance. Thus, the relationship between banks and depositors is
a debt–creditor relationship. Meanwhile, deposits are equivalent to investment accounts in an
Islamic banking system and their returns depend on the performance realized by the bank.
The relationship between Islamic banks and depositors is called Mudharib–Rab-Al-Mal
relationship. Since the access to Islamic banking services is not restricted to Muslims, the
coexistence of these two types of deposits gives rise to a specific risk exposure for Islamic
banks. Indeed, when depositors give a major importance to deposit’s yield, and when the
return of profit-sharing investment accounts (PSIA) is insufficient compared to competitors,
the shareholders of the Islamic bank are exposed to withdrawal risk. To avoid this, banks’
shareholders could compensate the difference between the PSIA’s realized returns and
a benchmark return using their own funds (Archer and Karim, 2006; Sundararajan, 2008;
Sundararajan, 2011; Hashem and Abdeljawad, 2018). This risk is called the “displaced
commercial risk” (DCR). Abduh et al. (2011) state that the withdrawal risk is the most
important risk to be managed by Islamic banks. In their article, they studied the
competitiveness of Islamic banks vs the conventional ones in a dual banking system. Thus,
the management of the DCR is an important issue for Islamic banks, since the withdrawal risk
could be seen as its direct consequence (Hashem and Abdeljawad, 2018).
The management of the PSIA is governed by the Mudharabah contract. The Islamic
financial institution is the Mudharib (entrepreneur) and the investment accounts holders are International Journal of Emerging
Markets
Rab-Al-Mal ( fund providers). This Mudharabah contract stipulates that market and credit © Emerald Publishing Limited
1746-8809
risks are borne by Rab-Al-Mal, while the Mudharib is exposed to operational risk DOI 10.1108/IJOEM-07-2018-0407
IJOEM (IFSB, 2011). Profit-sharing arrangements are agreed in advance in the Mudharabah
contract. Investors bear the losses. In the case of fraud or negligence by the Mudharib, this
rule shall not be applied (Farooq and Vivek, 2012). The investors’ return represents their
share in the realized profit after the deduction of reserves and the Mudharib commission
(Archer et al., 2010; Archer and Karim, 2006; Sundararajan, 2008).
We shall distinguish two types of PSIA: restricted and unrestricted investment
accounts. Restricted profit-sharing investment accounts (R-PSIA) are subject to the
conditions previously set by the Islamic financial institution or to the conditions agreed at
the conclusion of the Mudharabah contract. Holders of restricted investment accounts are
involved in the choice of geographical and sectorial asset allocation, as well as in
the choice of investment horizon (Archer et al., 2010). Furthermore, the holders of these
accounts bear the credit and market risks associated to the underlying assets. Meanwhile,
the Islamic bank creates an investment pool containing its own funds and those of the
unrestricted profit-sharing investment accounts (UR-PSIA). In this case, the bank bear
the operational risk and shares the bearing of the credit and market risks with the
unrestricted investment accounts holders (Abdullah et al., 2011; IFSB, 2011). Despite
the structural differences between these two types of accounts, Islamic banks can treat
them in a similar way regarding the DCR (IFSB, 2011).
In order to guarantee competitive incomes, the Islamic bank must select rigorously its
assets. When the PSIA’s return is insufficient compared to competitors, the banks’
shareholders use specific reserves to improve distributed return to depositors. The Islamic
bank, if necessary, can reduce partially or totally its Mudharib commission. In the extreme
case, the bank uses shareholders’ funds to offset the difference between PSIA’ return and the
benchmark (Archer et al., 2010; Archer and Karim, 2006; Ariffin et al., 2009). The purpose of
these adjustments is to minimize the number of investors switching to another bank. Some
previous studies, analyzing this behavior, claim that three major factors influence
customers. The first is the quality of service (Amin and Isa, 2008; Kaakeh et al., 2019;
Mahadin and Akroush, 2019; Metawa and Almossawi, 1998; Othman and Owen, 2001). The
second is the profit provided by other banks (Sukmana and Ibrahim, 2017). The third is the
variety of products and services (Awan and Shahzad Bukhari, 2011). Other studies highlight
that depositors choose Islamic banks not only according to religious factor. Indeed,
historical profits represent an important factor in the bank selection process (Awan and
Shahzad Bukhari, 2011). Zainol and Kassim (2010) find that deposits in Islamic banks
depend considerably on the level of the interest rate. Indeed, a significant increase of
deposits’ transfer from Islamic banks to conventional ones is observed after an increase in
the conventional banks’ interest rate. Hamza (2016) has confirmed this result.
In order to limit the withdrawal risk, prudential reserves allow the Islamic bank to
reward its investors in the case of an insufficient yield of the Mudharabah underlying assets
(Archer et al., 2010; Archer and Karim, 2006; Sundararajan, 2008). The management of these
reserves allows the bank to avoid the DCR. Indeed, in case of underperformance of the
Mudharabah contract, the bank uses these reserves instead of mobilizing shareholders’
funds (Archer et al., 2010; Archer and Karim, 2006; Sundararajan, 2008). Theoretically, there
is no limit for their size. The Islamic bank may assess the required size of the reserves based
on its estimated losses, and on the percentage agreed with the investors (Sundararajan,
2008). According to their sources and uses, prudential reserves are of two categories: profit
equalization reserves (PER) and investment risk reserves (IRR).
For the Auditing and Accounting Organization for Islamic Financial Institutions
(AAOIFI) and the Islamic Financial Services Board (IFSB), the PER represents a share of the
revenues realized on the Mudharabah contract before the distribution of the Mudharib’s
commission. The Islamic bank and its depositors own the amounts constituted in this
account (Archer and Karim, 2006). The aim of the PER is to smooth the investment accounts
returns and to keep them equivalent to the benchmark (Ariffin et al., 2009; Boulila Taktak Displaced
et al., 2010; Kasri and Kassim, 2009). In practice, the bank uses the PER belonging to the commercial
investment account holders first and if it is not sufficient, it uses the PER belonging to the risk
bank (Sundararajan, 2008).
The second type of prudential reserves is IRR. These reserves are constituted after the
distribution of the Mudharib commission (Sundararajan, 2008). Consequently, these
reserves belong to the investment accounts holders. Their mobilization occurs only in
the case of a negative Mudharabah contract’s return (Archer and Karim, 2006;
Sundararajan, 2008). Moreover, even if the mobilization of the IRR does not allow to
attempt a positive return, Islamic bank cannot use the PER (Archer and Karim, 2006;
Sundararajan, 2008). Similarly, when the actual performance on the Mudharabah contract is
positive, and even using the PER, the bank cannot procure a return equivalent to the
benchmark; the IRR cannot be used for this purpose (Archer and Karim, 2006; Sundararajan,
2008; Sundararajan, 2011). Although the DCR presents a real threat for Islamic banks
operating in a dual banking system, actual literature reveals a lack of studies offering
solutions for managing and monitoring this type of risk. Hence, we propose an innovative
approach based on machine learning for this purpose.
The main contribution of this paper is to build the utility of machine learning techniques as
a decision support tool in Islamic banking. The implementation of this approach focuses on the
prediction of the deposit variation intensity (DVI) as a proxy of the DCR. This study differs
from the existing ones since it attempts to predict the DCR based on micro and macro variables
using machine learning algorithms, while the existing studies use risk measures calculated
from the yield of the Mudarabah contract that governs the investment accounts. This
approach would help Islamic banks to better conduct the policy of income distribution to
depositors and to optimize the accumulation or mobilization of prudential reserves. On the
other hand, this study introduces a transition procedure that allows deposits protection, since it
gives the amount that a bank’s shareholders should pay to IAH to avoid massive withdrawals.
Using the development of computers’ capacity and sophisticated data-modeling
techniques could be used to estimate non-linear dependencies from data. Consequently,
traditional boundaries between statistics, as a mathematical field, and business applications
are no longer relevant (Vladimir Cherkassky, 2007). Furthermore, the use of empirical
solutions differs from the statistical approach. Indeed, the latter is based on density
estimation of available data and uses fixed parametric functions for modeling the
dependencies that need the validation of several statistical assumptions. On the other hand,
machine learning approach uses error minimization to predict future values. Consequently,
machine learning algorithms need less assumptions validation and are enable to model an
arbitrary form of non-linear dependencies (Vladimir Cherkassky, 2007).
The application of machine learning techniques for managing and monitoring the DCR
requires the identification of several internal and external factors affecting PSIA’s volume.
Indeed, few studies have attempted to establish a link between this risk and macroeconomic
variables from the financial market, and variables from the Islamic bank ‘statements. The
purpose of this paper is to give an example of how innovative techniques, such as machine
learning, could provide a framework for the management of this risk based on real data of
Islamic banks from different countries. Consequently, this work is attempted to provide an
innovative approach to manage the DCR by predicting and optimizing returns’ distribution
to PSIA’s holders using machine learning algorithms. To the best of our knowledge, this
study would be the first to propose an ex ante methodology to manage and monitor this risk.
For this purpose, the paper will be organized as follows; we will begin with a literature
review that outlines the different studies about this risk. The second part will focus on our
methodology based on some machine learning algorithms, as well as a presentation of the
exploited data. The last part presents the results obtained, a discussion and a conclusion.
IJOEM 2. Literature review
With the absence of the Basel standards dedicated to Islamic banks, the stability of Islamic
banking system remains the responsibility of the IFSB and the AAOIFI. In order to reinforce
this stability, the IFSB recommends the establishment of risk management systems for
Islamic banks. These latter are exposed, like conventional ones, to several risks such as
credit risk, market risk, operational risk and liquidity risk (Khan and Ahmed, 2001; Siddiqui,
2008; Ben Selma Mokni and Rachdi, 2014). On the other hand, Islamic banks’ exposure
involves specific risks such as DCR, equity investment risk and Sharia-compliant risk (Khan
and Ahmed, 2001; Siddiqui, 2008; Ben Selma Mokni and Rachdi, 2014; Daher et al., 2015;
Rosman and Abdul Rahman, 2015; Hashem and Abdeljawad, 2018). This work attempts to
study the DCR in particular.
To estimate the DCR, the IFSB recommends an approach that distinguishes three
scenarios (IFSB, 2011). The first one reflects the policy of performance distribution to
UR-PSIA holders based on the profit-sharing rate agreed in the Mudharabah contract. In fact,
the distributed return to UR-PSIA holders is equal to the realized return on invested assets. In
this case, the shareholders do not bear any additional risk transferred by the UR-PSIA
holders. The second scenario is where UR-PSIA are considered as conventional deposits. In
this context, the shareholders provide to the UR-PSIA holders a return equivalent to the
Benchmark’s performance regardless the return’s level realized on the invested assets. The
potential risk amount that can be transferred from UR-PSIA holders to shareholders is at its
maximum level. Under the third scenario, the shareholders bear partially the commercial risk
that is theoretically borne by the UR-PSIA holders. In this configuration, market risk and
credit risk inherent to UR-PSIA are partially borne by the shareholders (IFSB, 2011). Using
these three scenarios, the DCR, according to the IFSB approach, is the difference between risk
level of the third and the first scenario. The maximum level of DCR is the difference between
the risk level in the second scenario and the risk in the first one.
The DCR forces Islamic banks to retain an additional proportion of capital to cover this type
of risk (Daher et al., 2015). This additional share is known as the “Alpha Coefficient” aCAR, which
depends on the disregard of the regulatory authorities of each country hosting a dual banking
system. aCAR is interpreted as the share of risk-weighted assets that are basically supported by
the UR-PSIA and will be transferred to shareholders as a result of competitive and regulatory
constraints. aCAR, following the IFSB approach, is defined as follows (IFSB, 2011):

Risk in Scenario 3Risk in Scenario 1

aCAR ¼ : (1)
Risk in Scenario 2Risk in Scenario 1

To estimate DCR, researchers suggested several risk measures. For instance, Sundararajan
(2011) used the standard deviation. This measure is used in the recommendations of the
IFSB. In his study, he computed the standard deviation of the banks’ Mudarabah historical
returns. However, this measure shows limitations. Indeed, in the case where the return’s
distribution is asymmetrical, the choice of the standard deviation as a measure of risk is
inappropriate. On the other hand, the value obtained from the standard deviation remains
very sensitive to the size of the available sample. In addition, the standard deviation gives
the same weight to the profits and losses. Toumi et al. (2018) suggested the use of different
variants of Value at Risk (VaR) such as Historical non-parametric VaR and the extreme
value theory-VaR as measures of risk instead of the standard deviation. In their study, they
highlight that the scenarios of risk depend on PSIA’s return, banks’ reserves and the
benchmark’s rate of return. They state that the management of the DCR is crucial to avoid
withdrawal risk and liquidity risk for Islamic banks.
Baldwin et al. (2018) add additional brick to the literature on DCR. They suggest an
alternative approach regarding an a coefficient’s estimation. This approach is based on
panel data to estimate a specific a coefficient for each bank. The result of their study Displaced
confirms that IFSB’s approach may generate, depending on the case, either commercial
over-capitalization or under-capitalization of Islamic banks against DCR. Indeed, IFSB’s risk
approach fixes the value of a of all banks within a country and does not take into account
either the banks’ risk profiles or their asset-liabilities structure.
Otherwise, Daher et al. (2015) highlight the impact of the DCR on the Islamic financial
industry. Indeed, they point out that the current prudential recommendations of Islamic
banks do not allow a better control of their exposure to the DCR. Furthermore, using the
two-step dynamic Generalized Method of Moments, they conclude that privately owned
Islamic banks tend to protect shareholders by independently mitigating the effects of DCR
through retaining higher reserves. Indeed, this study highlights the integration of higher
capital buffers to overcome rate of return risk and DCR.
Furthermore, Ismal (2012) attempts to establish a relationship between DCR, withdrawal
risk and bankruptcy within Islamic banks. Using a mathematical approach and scenarios
analysis, he states that the withdrawal risk occurs when the banks fail to manage the DCR.
On the other hand, massive withdrawals would systematically lead to bankruptcy.
To manage these risks, he suggests an equilibrium area that depends on revenues
distribution ratio to depositors. In addition, the equilibrium depends on the bank’s state
whether it is vulnerable, invulnerable, bankrupt or solvent.
The purpose of these studies is to calculate the amount of equity required to face the
DCR. Nevertheless, these methods remain ex post approaches. Indeed, the Islamic banks
must accumulate prudential reserves based on the historical values of the relative returns of
the PSIA against the benchmark in order to limit the consequences of the DCR. Furthermore,
these approaches only use the realized profits and losses instead of using a framework that
includes different micro and macroeconomic parameters. By ex post, we mean that the
strategy of Islamic banks consists on the mobilization of PER, IRR and equity to overcome
DCR when it occurs. In the same context, these studies assume that by correctly estimating
the DCR, Islamic banks would avoid massive withdrawals.
To fill the gap, this work suggests a prescriptive and ex ante approach based on the
prediction of the DVI. By ex ante, we mean that if we predict deposit leakage, Islamic banks
would monitor DCR in a better way. Indeed, this paper contributes in the literature in
different ways. First, it highlights the contribution of machine learning techniques to limit
ex ante the consequences of the DCR. Moreover, it offers a rules-based approach to optimize
its revenue distribution and reserves’ retention policy. Additionally, it presents a decision
tool to control the withdrawal risk. The main assumption of this work is that we consider
that the DCR of a given year is independent of the ones of the previous years. We justify this
assumption with two arguments. The first one is that the investment choices for a current
year within an Islamic bank are independent from historical decisions in previous years.
The second one is that the decision to offset or not the gap between realized returns and the
benchmark is independent from decisions taken in previous years. Furthermore, we
consider that depositors are mainly driven by returns and they do not consider historical
relationship with their banks. Concerning the second assumption, as mentioned before
empirical works of Hamza (2016), had shown that the Islamic banks’ depositors are
significantly driven by the return more than other factors. Finally, we consider that
unrestricted investment accounts are dominating the restricted ones as disclosed
empirically by Baldwin et al. (2018).

3. Methodology
The aim of this section is to highlight how machine learning algorithms would help Islamic
banks to predict the impact of the DCR. Furthermore, we construct a transition procedure that
determines the amount a bank’s shareholders should transfer to investment accounts holders
IJOEM to avoid a massive withdrawal risk. Using the yearly DVI as a proxy of DCR, the objective is
to detect whether an Islamic bank could predict investment accounts’ migration using
available data. To attempt this objective, we will use data of 43 Islamic banks from
12 countries (Table I). The data combine historical balance sheets, income statements and
some key metrics ratios. For each bank, we have used all records available on Thomson
Reuters. Using these data, we will construct several machine learning models to predict the
DVI. To avoid overfitting, we split data into two sets. The first one will be used for training
purposes and the second one for validation. As a result, 245 observations are used for
training and 106 observations for validation, which represent, respectively, 70 and 30 percent.
The remainder of this section is structured as follows. First, we will introduce different
variables that will be used as explanatory (independent) variables. Second, we will present
the algorithms used in the prediction process. Third, we will compare the predictive power
of the empirical models. At the end of this section, we will discuss the main results and the
ability to construct a transition procedure to avoid negative deposit variation.

3.1 Variables’ description

The target variable of the constructed machine learning models is the deposit variation. We
have chosen this variable since it is the main consequence of the DCR. The DCR is
associated with loss of competitiveness and lack of liquidity (Hamza, 2016). Since
investment accounts are the main external resource for financing the activity of Islamic
banks, shareholders may compensate the deficiency of the return distributed to IAH,
otherwise they will lose them. Shareholders would prefer to sacrifice a return on an external
resource rather than losing the resource itself. Consequently, the decline of investment
deposits can be assimilated as an occurrence of the DCR. We choose DVI as a proxy of DCR
by assuming that an increase of investment deposits is reflected either by the arrival of the
new IAH or by the incorporation of positive results in these deposits. Similarly, a negative
variation of the deposits can be justified either by a negative return or by the departure of
the current IAH or both.
Instead of predicting the exact value of deposit variation, we suggest to predict the DVI
by creating a categorical variable based on deposit variation values. For instance, we can
consider two classes; positive variations vs negative ones. This choice would be made for
two reasons. The first one is the bad prediction’s quality that occurs when the sample size
is limited. Second, this choice is enough when what matters most for the Islamic banks is to
know if there would be a deposit withdraw or not. Overall, the purpose of this paper is
to introduce machine learning algorithms as a decision making tool for Islamic banks.

Country No. of banks No. of observations From To

Bahrain 5 36 2001 2015

Brunei 1 4 2012 2015
Indonesia 2 22 2001 2016
Kuwait 4 35 1998 2015
Malaysia 11 48 2010 2016
Oman 1 16 2000 2015
Pakistan 2 6 2012 2105
Qatar 3 36 2002 2016
Saudi Arabia 3 34 2001 2016
Turkey 2 20 2005 2016
Table I. UAE 7 78 2000 2016
Data description UK 2 16 2007 2016
Concerning independent variables, we have adopted a subset of the classical variables used Displaced
in machine learning models for finance. However, instead of using absolute values, we aim commercial
to develop a generic model based on ratios. Consequently, the bank’s size has no impact on risk
the prediction’s performance. Thus, any bank can use the model by injecting its ratios.
Furthermore, we aim to predict DVI at a moment “t” using lagged explanatory variables
with a time lag of one year.
The first ratio used as a variable is the deposit to total asset ratio (DTA). This ratio
belongs to leverage variables. It provides a measure of the total indebtedness of the bank.
We include this ratio since it may affect the bank’s deposit variation and give insights about
the importance of deposits in the bank’s liabilities structure.
The Islamic bank profitability is as well considered in this study since it determines the yield
of the PSIA. Indeed, the profitability ratios highlight the ability to generate earnings (Chancharat
et al., 2007). For this category, we have chosen three ratios. The first one is the return on assets
ratio. The second one is the efficiency ratio. The third one is the loan growth ratio.
As a market variable, we need a variable that combines distributed earnings to
PSIA holders and an interest benchmark by country. Therefore, we use the benchmark
to PSIA yield ratio (BYR) as a variable. PSIA yield ratio is the interest on deposit to total
deposits ratio.
Finally, we include the interest on deposit to net income ratio (INR) as a proxy of the
profit and loss sharing ratio. This variable represents the sharing principle that should
characterize Islamic banks. Table II summarizes the descriptive statistics of the considered
variables. Table III provides the Pearson correlation coefficient among all pairs.
The general model is summarized in as follows:
DVIt ¼ f ðROAt1 ; INRt1 ; BYRt1 ; EFRt1 ; DTAt1 ; LGRt1 Þ: (2)
The objective is to infer the function f using several machine learning algorithms.

3.2 Machine learning algorithms

DVI prediction is a matter of classification. This study employs supervised learning
methods to create models for DVI prediction. Among these algorithms, we use Random

ROA INR BYR EFR DTA LGR

Mean 0.01539 2.63591 2.63155 0.59154 0.73224 0.86883

Median 0.01445 1.04549 1.21588 0.47000 0.78921 0.17900
SD 0.02091 9.34233 17.56622 0.62324 0.20639 8.28140
Skew 0.12732 1.05545 18.41327 6.23610 −2.14557 15.41732
Kurtosis 5.93318 40.75407 342.84946 47.04081 3.88408 251.98738 Table II.
Minimum −0.08522 −86.00000 0.03999 −0.07500 0.05357 −1.01100 Descriptive statistics
Maximum 0.13201 70.05405 328.89106 6.37400 0.95260 142.23100 of the variables

ROA INR BYR EFR DTA LGR

ROA 1
INR −0.098 1
BYR 0.090 −0.025 1
EFR −0.605** 0.054 −0.032 1
DTA −0.046 0.033 0.017 0.041 1 Table III.
LGR −0.060 −0.019 -0.003 0.135* 0.042 1 Correlation analysis of
Notes: *,**Significant at the 0.05 and 0.01 levels, respectively (two-tailed) the variables
IJOEM Forest Classifier (RFC), Gradient Boosting Machine (GBC), Support Vector Classifier (SVC)
and Neural Network Classifier (NNC).
3.2.1 The Random Forest Classifier (RFC). The Random Forest algorithm is based on a
combination of tree predictors (Breiman, 2001). Each tree predictor is generated using a
random subset of variables, and selecting a random sample with replacement of the training
set. Each tree is constructed independently from the others. Once the forest is constructed,
the decision is made by making a vote using the decision of every tree predictor. Breiman
(2001) stated that random forests do not overfit when the number of predictors becomes
higher. For this reason, we have chosen RFC over a classic decision tree model. RFC is used
in several fields such as genetic (Bowman et al., 2019), face recognition ( Jayalekshmi and
Mathew, 2017) and tumor detection (Paul et al., 2017).
To optimize the performance of the RFC, we used several parameters such as the number
of predictors, the maximum number of variables and the maximum depth for a given tree
predictor. To find the best value for each parameter, we used a hyper-parameter
optimization method based on an exhaustive grid search.
3.2.2 The Gradient Boosting Machine (GBC). GBC used the same methodology as RFC
based on boosting and bagging (Friedman, 2001). The main difference between GBC and
RFC is the fact that GBC constructs tree predictors sequentially and each new tree would
learn from the previous one by taking into account its misclassification error. Indeed, GBC
solves numerically, at each iteration, a minimization problem where the loss function is the
target objective using the gradient method. For instance, binomial and multinomial loss
functions are used when it is a classification model.
The first version of the model used each training data point to minimize the loss function.
After one year, Friedman (2002) improves the performance of the first version by
incorporating randomization in the selection of the training data at each iteration of the
process. Similarly to RFC, GBC contributes to several fields such as the modeling of the
energy consumption of buildings (Touzani et al., 2018) and the prediction of blood pressure
(Zhang et al., 2017). To find the best parameters, we use the same methodology as RFC.
3.2.3 The Support Vector Classifier (SVC). SVC used two principles to perform
classification. The first idea is the maximization of the decision frontier between two classes
and the nearest samples called the support vectors (Vapnik, 1998). This maximization would
bring to the model better prediction capabilities. The second principle is the ability to find a
new space of a non-linear combination of variables where a linear separation can be found
with minimum computation cost (Vapnik, 1998). This ability is called the kernel trick and it
is based on the use of a general form of the inner product in a Hilbert space.
Vapnik (1998) described three different kernels for generating a new space using initial
variables. The first one is the Polynomial Support Vector Machines kernel. For this kernel,
the inner product is a d-degree symmetric function. The second one is the Two-Layer Neural
Support Vector Machines kernel. In this case, a sigmoid function is used to construct the
inner product. The third one is the Radial Basis Function (RBF) Support Vector Machines
kernel based on the RBF theory. In this study, we will use this kernel.
3.2.4 The Neural Network Classifier (NNC). Artificial Neural network algorithms are
widely used in finance. Indeed, several studies used them to predict bond ratings (Dutta and
Shekhar, 1988; Hajek and Michalak, 2013; Surkan and Singleton, 1990). Arundina et al.
(2015) used them to the specific case of Sukuk (Islamic bonds) ratings.
Like the human learning process, artificial neural networks figure out using several
layers the relationship between inputs and outputs data. They are known by their
efficiency in solving prediction problems. However, it is difficult to explain how these
networks solves a particular problem since it is similar to a black box (Mackinnon and
Glick, 1999; Tzeng and Ma, 2005).
 There are several structures of artificial neural networks. In general, there is input, Displaced
hidden and output neurons that are related. Furthermore, there is an activation function of commercial
each neuron in the network. In this work, we will use the multi-layer perceptron as it is the risk
most widely used. In this structure, the input function of each hidden and each output is the
weighted sum of the inputs. The sigmoid function is used as neuron’s activation function
(Kruse et al., 2013).
Table IV highlights the advantages and disadvantages of each algorithm used in
this paper.

3.3 Results
In our study, we consider a classification problem. Therefore, we will use for performance
comparison the accuracy ratio:
TP þTN
Accuracy ¼  100%; (3)
TP þFP þFNþTN
where TP, true positives, is the number of data points correctly predicted as positive; TN,
true negatives, is the number of data points correctly predicted as negative; FP, false
positives, is the number of data points incorrectly predicted as positive; and FN, false
negatives, is the number of data points incorrectly predicted as negative.
Since banks worry to misclassify their DVI as positive while it is negative, we will add a
ratio that we call the risk ratio:
OP
Risk ¼  100%; (4)
TPþFP þFN þTN
where OP is the number of overestimated predictions. For two categories, OP is equivalent
to FP.
Depending on the bank’s risk profile, and the configuration of the market in which it
operates, critical areas of deposit variation differ from bank to another. Also, the
determination of the critical zone depends on its market share as well as its commercial policy.
In order to illustrate and highlight the contribution of machine learning techniques for the
management and monitoring of the DCR, we consider in the following sections that the critical
level of deposit variation is below −5 percent, between −5 and 5 percent is a zone of
non-significant deposit variation and beyond 5 percent is a significantly positive variation.

Machine learning
algorithm Advantages Disadvantages

Gradient High performing A small change in the feature set or training set
Boosting can create radical changes in the model
Not easy to understand prediction process
Random Forest A sort of “wisdom the crowd” Models can get very large
Tends the results in very high-quality Not easy to understand prediction process
models
Fast to train
Neural Networks Can handle extremely complex tasks Very slow to train, because they often have a
No other algorithm comes close in very complex architecture
image recognition Very hard to understand prediction process
Support Vector Work well even if data is not linearly Speed and size requirement both in training and Table IV.
Machine separable in the base feature space testing is more Advantages and
High complexity and sensitive memory disadvantages of the
requirement for classification in many case used algorithms
IJOEM 3.3.1 Results using two categories. For this model, we create two categories:
(1) Category B: DVIo0; and
(2) Category A: DVI ⩾ 0.
Table V highlights the training and validation results of the model using classification
algorithms. Table VI contains the accuracy and risk ratios computed from the confusion
matrix for each algorithm. Figure 1 shows the variables’ importance for GBC and RFC
models. SVC and NNC do not provide this information.
3.3.2 Results using three categories. For this model, we will use three categories:
(1) Category C: DVI o−5 percent;
(2) Category B: −5 ⩽ DVI o5 percent; and
(3) Category A: DVI ⩾ 5 percent.
Tables VII and VIII highlight the results for three categories classification model. Figure 2
shows the variables’ importance for GBC and RFC models.

3.4 Discussion
The first model involves two classes for the categorical target variable, whether the DVI is
positive or negative. The objective of this model is to establish a relationship between the
DVI and the occurrence of the DCR. Indeed, we assume that a negative DVI means that
depositors prefer to switch from their current bank to another. A positive DVI means the
opposite. As shown in Tables V and VI, the model reaches a precision rate of at least
76 percent. SVC presents an accuracy rate of 84 percent using validation results. Figure 1
shows the importance of each variable in the underlying model. We notice that both INR and
BYR (variables involving distributed incomes to depositors) have the most importance
compared to the remaining variables.
The second model involves three categories. We consider a DVI between −5 and
5 percent as a normal variation of the market. Below −5 percent could be perceived as a
serious alert for the bank managers. Variation above 5 percent is considered as a high
positive variation. The latter could be seen as an opportunity for the bank to increase its
provisions instead of distributing excessive returns to its IAH. The use of these deposit
variation values depends on the bank’s market share as well as its commercial policy. In this
paper, we choose −5 and 5 percent as boundaries only for illustration purposes. Tables VII
and VIII show a slight drop of the model accuracy with 66 percent as the lower bound and
75 percent in the best case. The risk ratio moves from 14 percent for the “two categories”
model to a maximum of 25 percent for the “three categories” one. Figure 2 shows that INR
keeps the most important position in the new model with a drop of BYR.
Using data-driven and machine learning models, the bank could implement an ex ante
deterministic provision strategy based on different states of the discussed variables and the
DVI prediction. Indeed, the ultimate purpose of the prudential reserves is to prevent a
substantial negative deposit variation. Table IX highlights different strategies that can be
adopted using the two categories model.
In addition to the predictive capacity, the model could be used for a prescriptive purpose.
Indeed, bank managers could set up a transition procedure to determine how much they
should distribute to depositors or keep in provisions to switch from a DVI to another. For
example, if a bank predicts a DVI of category “C,” the machine learning models could allow
it to specify the amount the shareholders need to bear in order to avoid a considerable
negative deposit variation. The amount to give to depositors to become classified in the
category “A” is obviously higher than the one needed to become classified in “B.”
Meanwhile, if a bank predicts a DVI of category “A,” the bank managers may choose to
 Two categories: training results Two categories: validation results
Predicted Predicted
Number Percent Number Percent
Observed Algorithm DIV ⩾ 0 DIV o0 Correct Correct Observed Algorithm DIV ⩾ 0 DIVo 0 Correct Correct

DIVo0 GBC 212 – 212/212 100 DIV ⩾ 0 GBC 83 8 83/91 91

RFC 211 1 211/212 100 RFC 88 3 88/91 97
SVC 212 – 212/212 100 SVC 89 2 89/91 98
NNC 207 5 207/212 98 NNC 81 10 81/91 89
DIVo0 GBC 12 21 21/33 64 DIV o0 GBC 15 – 0/15 0
RFC 24 9 9/33 27 RFC 15 – 0/15 0
SVC 27 6 6/33 18 SVC 15 – 0/15 0
NNC 16 17 17/33 52 NNC 15 – 0/15 0
commercial
Displaced

Classification
Table V.
risk

accuracy for the two

categories model
IJOEM distribute less income to depositors and keep the remainder in provisions. This decision
could be appropriate if the bank does not seek high DVI and would accept to be classified in
“B” category instead of “A.”
In practice, variables used in the machine learning models are of two types; actionable
and non-actionable variables. Actionable ones are variables that bank managers could
change and depend on bank’s internal policy. In our case, BYR and INR are actionable.
The remaining variables are not. Indeed, BYR and INR depend on the Interest on deposit
to total deposits ratio. The latter reveals the revenue that the bank decides to distribute to
its depositors. If we consider this ratio as a decision parameter, we can compute several
values of BYR and INR. Then, we can run the machine learning models to predict DVI
using different values of these ratios. In Figure 3, we apply this methodology using the
three categories model. Blue points in the Figure 3 represent the values of BYR depending
on the interest on deposit to total deposit ratio. The orange, gray and green areas
represent the different DVI classes, which are the output of the machine learning model
using updated parameters.
As mentioned in the literature review, the suggested approach differs from the existing
studies. The latter are trying to estimate DCR using standard deviation, VaR and
mathematical formulation with scenarios analysis, which are ex post approaches. Indeed,
our methodology contributes to fill the gap in the actual literature by using an ex ante
approach using banks financial indicators and machine learning algorithms. Furthermore,
the output of the model provides several decision strategies depending on the prediction of
the DVI. These strategies combine three parts. The first one is how to deal with the banks’
depositors in term of revenues sharing. The second one is how to optimize prudential
reserves. The third one is to provide for shareholders a predicting tool regarding the
occurrence of the DCR. On the other hand, previous studies are limited to estimate the DCR
and to constitute prudential reserves using only the historical values of assets’ returns.

4. Conclusion
DCR is one of the most important risk that Islamic banks should manage. For this purpose,
banks used prudential reserves, PER and IRR, to smooth the investment accounts’ return
and to guarantee the capital for the depositors. This paper suggests a data-driven approach

Two categories: training results (%) Two categories: validation results (%)
Table VI. GBC RFC SVC NNC GBC RFC SVC NNC
Accuracy and risk
for the two Accuracy 95 90 89 91 Accuracy 78 83 84 76
categories model Risk 5 10 11 7 Risk 14 14 14 14

Features’ importance
40%
35% RFC GBC
30%
25%
20%
Figure 1. 15%
GBC and RFC
10%
variables’
importance for the 5%
two categories model 0%
ROA INR BYR EFR DTA LGR
 Three categories: training results Three categories: validation results
Predicted Predicted
Number Percent Number Percent
DVI o
Observed Algorithm DVI ⩾ 5% −5 ⩽ DVI o5% −5% Correct Correct Observed Algorithm DVI ⩾ 5% −5 ⩽ DVI o5% DVI o−5% Correct Correct

DVI ⩾ 5% GBC 186 0 – 186/186 100 DVI ⩾ 5% GBC 70 9 1 70/80 88

RFC 183 3 – 183/186 98 RFC 75 5 – 75/80 94
SVC 186 0 – 186/186 100 SVC 79 1 – 79/80 99
NNC 179 7 – 179/189 96 NNC 68 8 4 68/80 85
−5 ⩽ DVI o5% GBC 17 25 – 25/42 60 −5 ⩽ DVIo 5% GBC 19 0 1 0/20 0
RFC 34 8 – 8/42 19 RFC 20 0 – 0/20 0
SVC 36 6 – 6/42 14 SVC 19 1 – 1/20 5
NNC 22 20 – 20/42 48 NNC 17 3 – 3/20 15
DVIo −5% GBC 6 0 11 11/17 65 DVI o−5% GBC 5 1 – 0/6 0
RFC 12 5 – 0/17 0 RFC 6 0 – 0/6 0
SVC 15 1 1 1/17 6 SVC 6 0 – 0/6 0
NNC 13 2 2 2/17 12 NNC 5 1 – 0/6 0
commercial
Displaced

Classification
risk

accuracy for three

Table VII.

categories model
IJOEM based on machine learning algorithms to predict and optimize these reserves. To the best of
our knowledge, this paper comprises the first attempt to provide an ex ante approach for
managing and monitoring DCR using machine learning algorithms.
Throughout this study, we established a supervised learning model. It includes
independent variables reflecting the banks characteristics. As a target variable to predict,
we used the DVI since the withdrawal risk and the DCR are highly correlated. We have seen
that the accuracy of the classification model using different algorithms is good enough. The
output predictions would provide, at a given year, a good estimation of the next year DVI.
The suggested model would help banks to predict the DVI using their current available
data. Also, they could optimize their prudential reserves using the transition procedure and
adjust their revenues distribution policy. Consequently, this model could be seen as an
efficient risk management tool for the bank risk managers. Furthermore, by predicting the
DVI, an Islamic bank could adjust their portfolio allocation. Indeed, if the current allocation

Three categories: training results (%) Three categories: validation results (%)
Table VIII. GBC RFC SVC NNC GBC RFC SVC NNC
Accuracy and risk
for the three Accuracy 91 78 79 82 Accuracy 66 71 75 67
categories model Risk 9 19 21 14 Risk 23 25 24 21

Features’ importance
35% RFC GBC
30%
25%
20%
Figure 2. 15%
GBC and RFC 10%
variables’ importance
for the three 5%
categories model 0%
ROA INR BYR EFR DTA LGR

Depositors’ return Strategy of the bank for year N

for year N is higher Depositors’ return for Predicted DVI Returns attributed
than the benchmark? year N is positive? for year N+1 Reserves policy to PSIA holders

Yes Yes DVI ⩾ 0 Increase of PER and Higher than the

IRR reserves benchmark
DVIo0 Increase of PER and Higher than the
IRR reserves benchmark
No DVI ⩾ 0 IRR mobilization 0%
DVIo0 IRR and PER Higher than 0%
mobilization
No Yes DVI ⩾ 0 No mobilization of Equal to the
either PER or IRR realized return
DVIo0 PER mobilization Equivalent to the
Table IX. benchmark
Decision strategies No DVI ⩾ 0 IRR mobilization 0%
using the two DVIo0 IRR and PER Higher than 0%
categories model mobilization
 600%
BYR Displaced
commercial
400% risk
Category C Category B Category A

200%

–3.40% –0.40%
0%
–4.80% –1.65% 0.95% 3.25%
Interest on deposit
to total deposits ratio
Figure 3.
–200% Predicted
classification by
varying BYR
–400% depending on the
interest on deposit to
total deposits ratio
–600%

provides a rate of return lower than the benchmark, the Islamic bank may allocate
differently its investments in order to reduce the gap with the benchmark. This would allow
it to monitor the deposits’ withdrawal being caused by the Mudharabah contract’s
underperformance. On the other hand, if the current allocation provides a rate of return
higher than the benchmark, the Islamic bank may offer more contracts based on profit and
loss sharing instead of mark-up contracts. Indeed, contracting more profit and loss sharing
contracts would reinforce the respect of Islamic finance principles within Islamic banks
since mark-up contracts are usually criticized.
For shareholders, our model would help to have a visibility on the amount to bear in case
of a DCR. Consequently, it would help them to make the best tradeoff between the
attractiveness of the bank for depositors and shareholders’ returns. This tradeoff, once
understood by the depositors, would increase their trust in the Islamic banks and their
services. Indeed, since the model predicts the depositors’ behavior and push the banks to
adjust their strategy accordingly, the banks systematically include their depositors’ interest
in their strategy.
The central bank could use this model as well. By computing DVI for each Islamic bank,
the central bank could have insights about whether there is a need to adjust the benchmark
rate. Indeed, since BYR depends on the benchmark rate, once the central bank changes this
rate it would affect the deposit variation intensities of the Islamic banks. Then, the central
bank could anticipate and avoid a systemic risk. From a regulator point of view, the model
could help to monitor the reserves amount for each bank and to be sure that these reserves
include the prediction of the DVI.
For researchers, this model could be seen as a starting point for more elaborated models
that analyze and predict depositors’ behavior to improve the model accuracy and
interpretability. These models would include for example the percentage of Muslims within
depositors and the bank debt scoring. Using machine learning and big data methodology,
researchers could help Islamic banks to have a toolbox to manage their risks in general and
not only the DCR.
The model presents several limitations. The first one is the lack of data used to train and
test the model. For machine learning models, abundance of data is a key element to develop
data-driven models. In our case, few data are available for a negative DVI compared to
positive DVI. The second limitation is related to the variables used in the model. We could
not find data related to PER, IRR, profit and loss sharing ratio and the exact percentage of
PSIA holders within all depositors since few banks publish these indicators.
IJOEM With the growth of the Islamic banking in several countries, the management of specific
risks such as DCR is very important to guarantee the competitiveness of Islamic banks vs
the conventional ones. Innovative techniques, such as machine learning, could help to
improve the robustness of the Islamic banking and to improve their competitiveness.

References
Abduh, M., Duasa, J. and Omar, M.A. (2011), “Factors influence depositors’ withdrawal behavior in
Islamic banks: a theory of reasoned action”, World Academy of Science, Engineering and
Technology, Vol. 60, pp. 2074-2079.
Abdullah, M., Shahimi, S. and Ghafar Ismail, A. (2011), “Operational risk in Islamic banks: examination
of issues”, Qualitative Research in Financial Markets, Vol. 3 No. 2, pp. 131-151.
Amin, M. and Isa, Z. (2008), “An examination of the relationship between service quality perception
and customer satisfaction: a SEM approach towards Malaysian Islamic banking”, International
Journal of Islamic and Middle Eastern Finance and Management, Vol. 1 No. 3, pp. 191-209.
Archer, S. and Karim, R.A.A. (2006), “On capital structure, risk sharing and capital adequacy
in Islamic banks”, International Journal of Theoretical and Applied Finance, Vol. 9 No. 3,
pp. 269-280.
Archer, S., Ahmed Abdel Karim, R. and Sundararajan, V. (2010), “Supervisory, regulatory, and capital
adequacy implications of profit-sharing investment accounts in Islamic finance”, Journal of
Islamic Accounting and Business Research, Vol. 1 No. 1, pp. 10-31.
Ariffin, N.M., Archer, S. and Karim, R.A.A. (2009), “Risks in Islamic banks: evidence from empirical
research”, Journal of Banking Regulation, Vol. 10 No. 2, pp. 153-163.
Arundina, T., Omar, M.A. and Kartiwi, M. (2015), “The predictive accuracy of Sukuk ratings;
multinomial logistic and neural network inferences”, Pacific-Basin Finance Journal, Vol. 34,
September, pp. 273-292, available at: https://doi.org/10.1016/j.pacfin.2015.03.002
Awan, H.M. and Shahzad Bukhari, K. (2011), “Customer’s criteria for selecting an Islamic bank:
evidence from Pakistan”, Journal of Islamic Marketing, Vol. 2 No. 1, pp. 14-27.
Baldwin, K., Alhalboni, M. and Helmi, M.H. (2018), “A structural model of ‘alpha’ for the capital
adequacy ratios of Islamic banks”, Journal of International Financial Markets, Institutions and
Money, Vol. 60, May, pp. 267-283, available at: https://doi.org/10.1016/j.intfin.2018.12.015
Ben Selma Mokni, R. and Rachdi, H. (2014), “Assessing the bank profitability in the MENA region: a
comparative analysis between conventional and Islamic bank”, International Journal of Islamic
and Middle Eastern Finance and Management, Vol. 7 No. 3, pp. 305-332.
Boulila Taktak, N., Ben Slama Zouari, S. and Boudriga, A. (2010), “Do Islamic banks use loan loss
provisions to smooth their results?”, Journal of Islamic Accounting and Business Research, Vol. 1
No. 2, pp. 114-127.
Bowman, S., McNevin, D., Venables, S.J., Roffey, P., Richardson, A. and Gahan, M.E. (2019), “Species
identification using high resolution melting (HRM) analysis with random forest classification”,
Australian Journal of Forensic Sciences, Vol. 51 No. 1, pp. 57-72.
Breiman, L. (2001), “Random forests”, Machine Learning, Vol. 45 No. 1, pp. 5-32.
Chancharat, N., Davy, P., McCrae, M.S. and Tian, G.G. (2007), “Firms in financial distress: a survival
model analysis”, 20th Australasian Finance & Banking Conference, Sydney, December 12–14,
available at: https://doi.org/10.2139/ssrn.1009385
Daher, H., Masih, M. and Ibrahim, M. (2015), “The unique risk exposures of Islamic banks’ capital
buffers: a dynamic panel data analysis”, Journal of International Financial Markets, Institutions
and Money, Vol. 36, May, pp. 36-52.
Dutta, S. and Shekhar, S. (1988), “Bond rating: a non-conservative application of neural networks”,
IEEE International Conference on Neural Networks, pp. 443-450.
Farooq, M.O. and Vivek, S. (2012), “Displaced Commercial Risk (DCR) and value of alpha (a%) for Displaced
Islamic banks in Bahrain/GCC ( July 1, 2012)”, paper accepted for presentation at Gulf Research commercial
Council (2012) Conference at University of Cambridge, available at: https://ssrn.com/abstract=2
318974 risk
Friedman, J.H. (2001), “Greedy function approximation: a Gradient Boosting Machine”, The Annals of
Statistics, Vol. 29 No. 5, pp. 1189-1232.
Friedman, J.H. (2002), “Stochastic gradient boosting”, Computational Statistics & Data Analysis, Vol. 38
No. 4, pp. 367-378.
Hajek, P. and Michalak, K. (2013), “Feature selection in corporate credit rating prediction”, Knowledge-
Based Systems, Vol. 51, October, pp. 72-84, available at: https://doi.org/10.1016/j.knosys.2013.07.008
Hamza, H. (2016), “Does investment deposit return in Islamic banks reflect PLS principle?”, Borsa
Istanbul Review, Vol. 16 No. 1, pp. 32-42.
Hashem, S. and Abdeljawad, I. (2018), “Islamic banks’ resilience to systemic risks: myth or reality-evidence
from Bangladesh”, in Hassan, M. and Rashid, M. (Eds), Management of Islamic Finance: Principle,
Practice, and Performance (International Finance Review), Vol. 19, Emerald Publishing Limited,
Bingley, pp. 37-68, available at: https://doi.org/10.1108/S1569-376720180000019003
IFSB (2011), “Guidance note in connection with the IFSB Capital Adequacy Standard: the determination
of alfa in the capital adequacy ratio for institutions (other than insurance institutions) offering only
financial islamic services”, Islamic Financial Services Board, Kuala Lumpur.
Ismal, R. (2012), “Formulating withdrawal risk and bankruptcy risk in Islamic banking”, International
Journal of Islamic and Middle Eastern Finance and Management, Vol. 5 No. 1, pp. 63-77,
available at: https://doi.org/10.1108/17538391211216848
Jayalekshmi, J. and Mathew, T. (2017), “Facial expression recognition and emotion classification
system for sentiment analysis”, 2017 International Conference on Networks Advances in
Computational Technologies (NetACT), pp. 1-8, available at: https://doi.org/10.1109/NETACT.
2017.8076732
Kaakeh, A., Hassan, M. and Van Hemmen Almazor, S. (2019), “Factors affecting customers’ attitude
towards Islamic banking in UAE”, International Journal of Emerging Markets, Vol. 14 No. 4,
pp. 668-688, available at: https://doi.org/10.1108/IJOEM-11-2017-0502
Kasri, R. and Kassim, S.H. (2009), “Empirical determinants of saving in the Islamic banks: evidence
from Indonesia”, International Journal of Islamic Financial Services, Vol. 3 No. 4, pp. 13-29,
available at: https://doi.org/10.2139/ssrn.1685226
Khan, T. and Ahmed, H. (2001), “Risk management : an analysis of issues in Islamic financial industry
(Occasional Papers) (No. 91)”, The Islamic Research and Teaching Institute (IRTI), Jeddah.
Kruse, R., Borgelt, C., Klawonn, F., Moewes, C., Steinbrecher, M. and Held, P. (2013), “Multi-layer
perceptrons”, Computational Intelligence: A Methodological Introduction, Springer London,
London, pp. 47-81, available at: https://doi.org/10.1007/978-1-4471-5013-8_5
Mackinnon, M.J. and Glick, N. (1999), “Applications: data mining and knowledge discovery in
databases – an overview”, Australian & New Zealand Journal of Statistics, Vol. 41 No. 3, pp. 255-275.
Mahadin, B. and Akroush, M. (2019), “A study of factors affecting word of mouth (WOM) towards
Islamic banking (IB) in Jordan”, International Journal of Emerging Markets, Vol. 14 No. 4,
pp. 639-667, available at: https://doi.org/10.1108/IJOEM-10-2017-0414
Metawa, S.A. and Almossawi, M. (1998), “Banking behavior of Islamic bank customers: perspectives
and implications”, International Journal of Bank Marketing, Vol. 16 No. 7, pp. 299-313.
Othman, A. and Owen, L. (2001), “Adopting and measuring customer service quality (SQ) in Islamic
banks: a case study in Kuwait finance house”, International Journal of Islamic Financial Services,
Vol. 3 No. 1, pp. 1-26.
Paul, D., Su, R., Romain, M., Sébastien, V., Pierre, V. and Isabelle, G. (2017), “Feature selection for outcome
prediction in oesophageal cancer using genetic algorithm and Random Forest Classifier”,
Computerized Medical Imaging and Graphics, Vol. 60, September, pp. 42-49, available at: https://doi.
org/10.1016/j.compmedimag.2016.12.002
IJOEM Rosman, R. and Abdul Rahman, A.R. (2015), “The practice of IFSB guiding principles of risk
management by Islamic banks: international evidence”, Journal of Islamic Accounting and
Business Research, Vol. 6 No. 2, pp. 150-172.
Siddiqui, A. (2008), “Financial contracts, risk and performance of Islamic banking”, Managerial
Finance, Vol. 34 No. 10, pp. 680-694.
Sukmana, R. and Ibrahim, M.H. (2017), “How Islamic are Islamic banks? A non-linear assessment of
Islamic rate–conventional rate relations”, Economic Modelling, Vol. 64, August, pp. 443-448.
Sundararajan, V. (2008), “Issues in managing profit equalization reserves and investment risk reserves
in Islamic banks”, Journal of Islamic Economics, Banking and Finance, Vol. 4 No. 1, pp. 1-11.
Sundararajan, V. (2011), “Profit sharing investment accounts: measurement and control of displaced
commercial risk DCR in Islamic finance”, Islamic Economic Studies, Vol. 130 No. 551, pp. 1-44.
Surkan, A.J. and Singleton, J.C. (1990), “Neural networks for bond rating improved by multiple hidden
layers”, 1990 IJCNN International Joint Conference on Neural Networks, Vol. 2, pp. 157-162,
available at: https://doi.org/10.1109/IJCNN.1990.137709
Toumi, K., Viviani, J.-L. and Chayeh, Z. (2018), “Measurement of the displaced commercial risk in
Islamic banks”, The Quarterly Review of Economics and Finance, Vol 74, November, pp. 18-31,
available at: https://doi.org/10.1016/j.qref.2018.03.001
Touzani, S., Granderson, J. and Fernandes, S. (2018), “Gradient Boosting Machine for modeling the
energy consumption of commercial buildings”, Energy and Buildings, Vol. 158, January,
pp. 1533-1543, available at: https://doi.org/10.1016/j.enbuild.2017.11.039
Tzeng, F.Y., Ma and K.L. (2005), “Opening the black box – data driven visualization of neural
networks”, VIS 05: IEEE Visualization, pp. 383-390, available at: https://doi.org/10.1109/
VISUAL.2005.1532820
Vapnik, V.N. (1998), Statistical Learning Theory, Adaptive and Learning Systems for Signal Processing,
Communications, and Control, Wiley, Hoboken, NJ.
Vladimir Cherkassky, F.M.M. (2007), Learning from Data. Concepts, Theory and Methods, 2nd ed., Wiley,
Hoboken, NJ.
Zainol, Z. and Kassim, S.H. (2010), “An analysis of Islamic banks’ exposure to rate of return risk”,
Journal of Economic Cooperation and Development, Vol. 31 No. 1, pp. 59-84.
Zhang, Z., Miao, Y., Meng, L., Xie, X., Pan, H. and Feng, X. (2017), “Estimation model for blood pressure
based on clustering and gradient boosting”, Proceedings of the 12th Chinese Conference on
Computer Supported Cooperative Work and Social Computing, Chinese CSCW’17, ACM,
New York, NY, pp. 48-55, available at: https://doi.org/10.1145/3127404.3127413

Further reading
IFSB (2005), Guiding Principles of Risk Management for Institutions (Other than Insurance Institutions)
Offering only Islamic Financial Services, Islamic Financial Services Board, Kuala Lumpur.
Mokni, R., Echchabi, A., Azouzi, D. and Rachdi, H. (2014), “Risk management tools practiced in Islamic
banks: evidence in MENA region”, Journal of Islamic Accounting and Business Research, Vol. 5
No. 1, pp. 77-97.

Corresponding author
Othmane Touri can be contacted at: othmane.touri@gmail.com

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com