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Qualitative Research in Financial Markets
Rewards in faith-based vs conventional banking

Shahid Muhammad Khan Ghauri, Amal Sabah Obaid Qambar,
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conventional banking", Qualitative Research in Financial Markets, Vol. 4 Issue: 2/3, pp.176-196, https://
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QRFM
4,2/3 Rewards in faith-based vs
conventional banking
Shahid Muhammad Khan Ghauri
Faysal Bank Limited, Lahore, Pakistan, and
176
Amal Sabah Obaid Qambar
Cardiff Metropolitan University, Cardiff, UK
Abstract
Purpose – The purpose of this paper is to analyze the performance of conventional and Islamic
paradigms of banking through profitability. Profitability of conventional and Islamic banks is
compared through four authentic methods of ratio through reliable statistical data from seven
countries. The healthier bank spread in the Islamic way of banking is analyzed and compared with the
conventional trend of banking.
Design/methodology/approach – Profitability of two-streams of banking are analyzed through
bank spread, bank margin to total assets, non-interest-based costs to total assets and relationship of
bank-spread and NPBT&Z of conventional and Islamic banks. Data from 87 banks belonged to seven
countries were analyzed to obtain results, of which 35 were following Islamic principles-based
products and services. Countries are selected among those which are following binary-banking
systems simultaneously. Statistical data are gathered from audited-annual reports of these sample
banks.
Findings – Islamic banks are found to reflect marginal bank spread but bear higher operational
(non-bank margin) costs.
Research limitations/implications – Statistical data are gathered from audited annual accounts
of banking companies. Foreign banks are excluded in this analysis due to non-availability of published
accounts for most of such banks at country level. Further NPLs of sample banks were not available in
most of sample banks, which could provide actual statistical figures for earning assets of bank.
Originality/value – The paper will be helpful in analyzing the business approach of the global,
growing trend of Islamic banking.
Keywords Islam, Banking, Bank spread, Profit, Bank margin, Islamic banking, Profitability
Paper type Research paper
Introduction
Islamic banking incorporated in Egypt since 1963 through incorporation of
Mit Ghamar Bank (MGB). Till now, Islamic banking assets have reached
US$2 trillion (Financial Daily, 2011) with establishment of more than 1,100 Islamic
financial institutions (IFIs) in 75 countries. CAGR of Islamic banking is 23 percent in
comparison with 17 percent of conventional banks (SBP, 2010). Islamic banking system
was adopted by many countries in mid-1970s either in binary-banking system (like
Indonesia, Malaysia, Qatar and UAE) or attempted to convert whole banking system
into Islamic (like Iran, Pakistan and Sudan) (Iqbal, 2001a, b). Although IFIs are
Qualitative Research in Financial flourished across the globe including Australia, Canada, GCC, Germany, South-Asia,
Markets UK and USA, however, key hubs of Islamic banking are South-Asia and GCC
Vol. 4 No. 2/3, 2012
pp. 176-196
q Emerald Group Publishing Limited
1755-4179
The authors are obliged to Dr Omar Masood for his guidance and efforts in completion of this
DOI 10.1108/17554171211252510 research.
(Sharif, 2006; Bacha, 2008; Jobst et al., 2008; Bhatti and Khan, 2008). The basic Faith-based vs
difference between the two is that conventional banking operates on debt and equity conventional
system while Islamic banking is based on equity participation mechanism in strict
compliance with Shariyah principles (Naser and Moutinho, 1997). Recently, various banking
renowned conventional banks are also attracted towards Islamic banking products
such as Citibank, JP Morgan, Deutsche Bank, ABN AMRO Bank and American
Express, similarly various MNC giants are also availing interest-free services such as 177
General Motors, IBM and Daewoo Corporation (Haron and Ahmad, 1999).
Since, aim of a commercial institution is higher profitability and core stream of retail
banking based on lending and deposits, whereas government-owned banks sometimes
operate with bit different strategy of servicing the general public. Bank Margin (BM)
refers to the differential between interest income and interest expense, whereas Bank
Spread (BS) is the differential of interest rate on advances and interest rate to
depositors and is represented in percentile. Since return on conventional banks’
deposits and finances are guaranteed contrary to Islamic banks’ deposits and finances
which shows that conventional deposits are less risk bearing comparatively, so it gives
an ultimate rationalization for charging relatively excessive rates to finances in case of
Islamic banking just to compensate the risk exposure (Iqbal, 2001a, b). Conventional
customers plan deposit decisions on currently available information while Islamic
banks depositors make such decisions from historical facts and future assumptions
(Haron and Ahmad, 1999). Bank spread is cautioned by policymakers as they reflect
intermediation cost (Brock and Suarez, 2000).
We have tried to analyze bank spread and profitability among Islamic and
conventional banks through following research questions:
RQ1. Comparison of Bank Spread (BS) among Islamic and conventional banks.
RQ2. Comparison of Bank Margin (BM) to Total Assets among Islamic and
conventional.
RQ3. Comparison of non-profit/interest costs to bank size among Islamic and
conventional.
RQ4. Comparison of Return on Assets among Islamic and conventional.
Further study has been segmented in different sections containing up-to-the-mark
literature review, methodology applied, data collection, empirical results and
discussion and ends up with the final conclusion.
Literature review
Bank Margin (BM) or Net Interest Margin (NIM) is the difference between interest
revenue and interest expense that is expressed in the form of percentile of average
earning assets (Ho and Saunders, 1981; Wong, 1996; Angbazo, 1997; Saunders and
Schumacher, 2000; Marinkovic and Radovic, 2010). Further, NIM is computed by
deducting interest expense from interest income divided by total customer loans less
problem loans by adding up other earning assets (Prerera et al., 2010). Deposits and loans
pricing are the major determinants of bank spread and bank profitability (Rose, 1991),
however, non-interest earnings contribute relatively small part of banks’ profitability
not above 20 percent (Drake and Llewellyn, 1995; Williams and Prather, 2010).
QRFM Non-interest income reduces total risk but relatively exposes the bank to systematic
4,2/3 risk (DeYoung and Roland, 2001; Stiroh, 2004; Williams and Prather, 2010). In
Islamic-principles based banking, same concept is meticulously adopted with exception
that profits are considered instead of prohibited interest. Metwally (1997) concluded that
conventional and Islamic banks offer similar rate of returns to their depositors. Various
macro-economic factors control Islamic banks depositors’ decisions rather mere
178 religious affection (Haron and Ahmad, 1999). Islamic banks are comparatively more
profitable than their conventional peers of same balance sheet size (Hassoune, 2002).
Lots of work has been done so far on bank spread and bank margin in conventional
banking describing the factors affecting bank spread. However, rare literature is found
related to bank spread in Islamic banking or its comparison with conventional. In
money market, Islamic institutions have lesser opportunities of direct borrowing from
central bank as it is not desirable due to direct involvement of interest in such
transactions (Iqbal, 2001a, b) therefore IFIs have to rely upon best matching and
balancing of their maturity-wise consideration of assets (advances and borrowings)
and liabilities (deposits). Some other factors affecting Bank spread or interest rate
include deposit-mix decisions, bank growth and profit margin (Edmister, 1982),
contribution of non-remunerative deposits (Drake and Llewellyn, 1995), interbank
market operations and hedging of funds (Wong, 1996), country bank interest rate
under profit maximization theory (Haron and Ahmad, 1999), savings volume under
profit-maximization-theory, market competitiveness, inflation rate and corporate taxes
(Haron and Ahmad, 1999), macroeconomic environment, loan losses and competitive
pressures (Brock and Suarez, 2000), inflation rate, equity capitalization and risk
exposures including liquidity risk (Afanasieff et al., 2002).
Iqbal (2001a) in comparative analysis of Islamic and conventional banking
highlighted some challenges to Islamic banks of this era:
.
increased competition within Islamic finance world due to more and more IFIs
entering this business;
.
increased competition due to conventional banks offering Islamic financial
products;
. financial crisis in 2001 and 2007 (though financial crisis has also popularized
Islamic lending products of mortgages through Ijarah, murabaha and
diminishing musharakah due to stagnant results during crisis period); and
.
growing popularity of Islamic bonds (Sukuk, BBAs, etc.) and Islamic mutual
funds which attract investors and customers directly rather routing via Islamic
banking channels.
He further concluded by analyzing liquidity and profitability ratios through time series
data of 1991-1994 that Islamic banks have outperformed conventional paradigm of
banking in almost all areas and observed considerable edge of growth results. Another
such study presented by Prerera et al. (2010) concluded that Bank Spread (BS) is affected
by bank size (as large size banks usually operate on comparatively narrow interest
margin), loan classification standards, loan recovery measures and central bank’s
intervention like in Sri Lanka in 1977 and in Pakistan and Bangladesh where reforms
were made in mid-1990s by their respective central banks through loosening controls
over deposit and lending rates. Similarly state-owned banks operate on some other
considerations rather only on profitability. Regulators some time manage to increase Faith-based vs
bank interest spread owing to discourage mergers and acquisitions among banks. conventional
Methodology banking
Various researchers have used different methods to probe into determinants of bank
spread such as popular model of Ho and Saunders (1981) which was later expanded by
Angbazo (1997); linking of rate of profit to Islamic banks’ deposits by Haron and 179
Shanmugam (1995); firm-theoretical model under uncertainty and risk-aversion by
Wong (1996) and Marinkovic and Radovic (2010); two-stage regression for six
industrial countries by Saunders and Schumacher (2000); comparative analysis on
bank spread in North-American states by Brock and Suarez (2000); Ho and Saunders
model through Poisson processes applied in Brazil by Afanasieff et al. (2001); Maudos
and Guevara (2005) including operating costs in this model; Valverde and Fernandez
(2005) applying this model in seven European countries; Content Analysis by Breton
and Cote (2006) for Canada and US markets; SCP model by Prerera et al. (2010); and
regression-analysis by Williams and Prather (2010).
Symbolic comparative study among conventional and Islamic banks was conducted
by Haron and Ahmad (1999) through analyzing rates of returns with Islamic banks’
deposits. Later, Iqbal (2001a, b) and Hossoune (2002) expanded through annualized
financial positions and financial ratios among groups of conventional and Islamic
banks. Further studies include cumulative abnormal returns (CARs) by Jackson (2004);
and auto-regression distribution lag (ARDL) model by Kasri (2008). Iqbal (2001a, b)
included capital assets ratio in such study due to: first regulatory authorities require a
minimum amount of bank capital, second size of bank capital is related to extra
measures of risk management and third amount of capital impacts rate of return.
Our methodology is structured to test four research questions that were defined
earlier.
A. Bank spread (BS) of Islamic and conventional banking

This model is applied to observe direct comparison of bank spread among two-troops
of banking:
BS ISL . BS CONV
Whereas
Profit earned from customers Profit paid to customers

BS ¼ 2
Total customers’ advances Total remunerative customers’ deposits
Since collected data is from seven different countries so above test had been applied on
country basis.
B. Bank margin (BM) to total assets (TASSETS)

Core objective of retail and commercial bank is to accept deposits and lend advances so
its earning capacity is determined through bank margin. BSIZE is the major
determinant on BM of a retail bank therefore we would ascertain ratio of BM to
TASSETS:
BM ISL . BM CONV
QRFM C. Non-profit/interest costs to bank size in Islamic and conventional
Non-profit/interest cost (NPC) is the remaining costs in annual income statement which
4,2/3 reduces NPBT&Z from bank margin (BM). It includes all sorts of incomes other than
interest/profit and all expenses other than interest/profit expense. This cost depends on
bank size (BSIZE), large size banks would have higher cost:
rNPC ISL , rNPC CONV
180
where NPC ¼ BM 2 NPBT&Z
Since we would consider the BSIZE as well so would obtain rate of NPC to Total Assets
(TASSETS) using Total Assets as proxy to BSIZE.
D. Return on assets (ROA) in Islamic and conventional

Comparison of profitability can be ascertained through another ratio which is return on
assets. This ratio is very popular among financial analysts across globe. We would
ascertain ROA in both tiers of banking for comparative analysis:
ROAISL . ROACONV
NPBT&Z
where ROA ¼
TASSETS
Data collection
Data has been collected from audited annual accounts of 87 banks from seven countries
namely Bahrain, Kuwait, Malaysia, Pakistan, Qatar, UAE and UK of which 35 banks are
following Islamic way of banking. Selection of the countries is made on the criterion of
prominent established Islamic banking market. In all of selected countries, Islamic
banking contributes more than 10 percent of total banking assets. Statistical figures of
total assets, shareholders’ equity, total finances, total remunerative deposits
(non-remunerative deposits such as current, call and reserve deposits are excluded),
profit earned from advances, profit paid to depositors, bank spread and net profit before
tax and zakat (in some countries zakat is paid instead of tax and in some with tax from
net profits) are extracted from audited published annual accounts of sample banks.
Actual earning advances (i.e. total advances less NPLs) could not be obtained due to
non-availability of bad loans in data of all countries so total advances have been taken
to ascertain average rate on advances. However, on liabilities side of financial position
actual remunerative customers’ deposits are considered by deducting current and
non-remunerative deposits from total deposits. Data of foreign banks excluded from
sample as most of these banks do not maintain audited annual accounts on country
basis and publish only world-wide statements therefore they cannot be made part of
this study. Second, foreign banks usually contribute very less proportion to the
industry in countries, therefore sample of local banks represent true major population.
Third, foreign banks work on different strategy of market penetration so we have
sampled local banks only in this data. Another challenge faced while research is the
mismatch of closing dates of published annual accounts. Since scope of our study is to
observe annual BS of banks so we have selected latest available published annual
accounts of all these banks, i.e. 2010 and in some cases 2009. Though some of already
researches have been designed on time series data but we have designed this research
on cross-sectional basis, i.e. data is taken of same annum so that impact of global Faith-based vs
macro-economic and financial factors would be common in all subject cases. Like
economic conditions are same for Bahrain in 2010 so all banks have faced similar kind
conventional
of challenges and threats, and enjoyed similar opportunities. Due to difference in banking
product-structures (assets and liabilities sides both) and tenor contributions, it is not
possible to compare loans-interest-rates with deposit-interest-rates among banks so we
used bank spread approach to observe comparison in Islamic and conventional banks. 181
Arithmetic mean of ratio in each norm of banking is used in each country to obtain
country wise comparison of BS. This country-wise comparison of seven countries
strengthens our RQ results.
Looking deep into country-wide collected data refer to Table I:
.
Bahrain. Economy of 351 financial institutions (FIs) of which 35 are Islamic and
is also hub for Islamic financial world’s controlling centers such as AAOIFI,
IIFM and IIRA. Within our scope 30 retail banks lie of which 15 foreign
established concerns were excluded (Central Bank of Bhrain, 2010), 12 among
rest are taken as sample. Our sample represents 75 percent of total banking
deposits in country. All of five Islamic banks are taken in sample.
.
Kuwait. Ranked third in terms of holding world Islamic financial assets (Khoja,
2006) by managing funds of US$56 billion (Bhatti and Khan, 2008). 21 total retail
banks are in country of which 11 are locally established (Central Bank of Kuwait,
2010) of whom eight are taken in sample. From six Islamic banks, five are local of
whom four are taken in sample. Selected sample represent 68 percent of total
banking deposits in country.
.
Malaysia. Considered as second biggest hub for Islamic finance worth RM
117 billion (US$ 35 million) comprising 20 percent share of total banking assets
in Islamic mode. Malaysia owns various Islamic indexes and an established
Islamic interbank money market (IIMM). Enriched with 42 retail banks of which
20 are locally established (Bank Negara Malaysia, 2010) and 13 of them are taken
into sample. Our sample represents 72 percent of total banking deposits.
Of 17 Islamic banks 11 are local and seven are taken into sample.
.
Pakistan. Fast growing Islamic banking market with higher profit margins
which share almost 10 percent of banking assets in Islamic mode. Economy
constitutes 34 retail banks of which 28 are local (SBP, 2010) and 22 are taken
as sample. All of five Islamic banks are included in sample. Selected sample
represent 82 percent of total banking deposits.
Retail banks Conventional Islamic Deposits

Country T L S T L S T L S T S %
Bahrain (BD) 30 15 12 24 9 6 6 6 6 8 billion 6 billion 75

Kuwait (KD) 21 11 8 15 6 4 6 5 4 25 billion 17 billion 68
Malaysia (RM) 42 20 13 25 9 6 17 11 7 103 billion 74 billion 72
Pakistan (PKR) 34 28 22 29 23 17 5 5 5 5 trillion 4.1 trillion 82
Qatar (QR) 26 11 9 22 7 5 4 4 4 247 billion 224 billion 91
UAE (AED) 51 23 14 43 17 10 8 6 4 786 billion 654 billion 83 Table I.
Reliability check
Notes: T – total; L – local; S – sample of research sample
QRFM .
Qatar. Islamic banking enjoys 30 percent share of total banking assets including
4,2/3 Doha Islamic index. Economy constituted of 26 retail banks of which 11 are
locally established (Qatar Central Bank, 2010) of whom nine are considered in
sample. Selected sample represents 91 percent of total banking deposits.
.
UAE. Largest hub of Islamic financial market represent 30 percent share of total
banking assets in Islamic modes along with Islamic index. Its economy
182 constitutes 51 retail banks of which 23 are locally established (Central Bank
UAE, 2010) of whom 14 are taken into sample. Selected sample represents
83 percent of total banking deposits.
.
UK. It is a newly established market for Islamic finance which is growing in
steady pace. Seeking the complexity in UK banking market, we have selected a
small sample of five conventional and three Islamic banks. Since UK banking
market is well established and Islamic banks do not contribute even single
percentile of it, we have selected this market as an experiment for application of
our model extracted from other countries.
Discussion and empirical results

Now we will discuss results of each test, one-by-one.
A. Bank spread (BS) of Islamic and conventional banking

BS of each bank is calculated first and then arithmetic mean of all conventional banks
is compared with arithmetic mean of all Islamic banks in each country as represented
in Appendix 1. Country-wise comparative analysis of both types of BS is represented in
Table II and Figure 1.
Table II depicts the country wise comparison of Bank spread in conventional and
Islamic banks. Empirical results of our test reflect that spread in Islamic banks always
remain higher than conventional mode of banking, with an exception of UAE. The
major reasons for contradiction in UAE results are:
.
well-established consumer finance market which gives very higher return to
conventional banks earning;
. most of Islamic banking assets side is contributed in Sukuk in UAE financial
market which do not come under scope of our research; and
.
established Islamic financial market has major proportion in corporate rather
retail banking.
Conventional Islamic
Country Spread (%) Spread (%)
Bahrain 6.315 6.380

Kuwait 3.870 5.311
Table II. Malaysia 3.408 6.519
Country-wise comparison Pakistan 2.675 3.108
of bank spread (mean) Qatar 2.708 3.947
in conventional and UAE 4.598 2.418
Islamic banks UK 2.064 2.451
7.000% Faith-based vs
conventional
6.000%
banking
5.000%
4.000% 183
3.000%
2.000%
1.000%
0.000%
Figure 1.
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Q Graphical presentation
Ku
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of comparative spread
in conventional and
Conventional Spread Islamic Spread Islamic banking
Major spread gap is reflected in Kuwait and Malaysia due to well-flourished retail
Islamic banking in country.
B. Bank margin (BM) to total assets (TASSETS)

Application of this test is helpful in analyzing earning potential of each side of banking
practice in countries. Earning potential depends on risks exposure which is proxy by
Total Assets in our analysis. Analysis is reflected in Appendix 2 and is summarized in
Table III and Figure 2.
This test reflects comparatively different snapshot than first one. According to the
results, conventional BM/TA is higher than Islamic on Bahrain, Pakistan and UAE
whereas rest of countries show same trend as of first test, i.e. Islamic banking BM/TA
is higher than conventional. Malaysia still stands top in chart where Islamic banking
has wide margin ahead of conventional.
C. Non-profit/interest costs to bank size in Islamic and conventional

This test is applied to assess the non-core contribution in banks’ net earnings. These
costs include differential of non-interest income and all operating and administrative
Country Conventional BM/TA (%) Islamic BM/TA (%)
Bahrain 3.237 1.845

Kuwait 2.500 2.787
Malaysia 1.948 3.721 Table III.
Pakistan 3.602 3.141 Country-wise comparison
Qatar 2.397 2.883 of bank spread (mean)
UAE 3.486 2.558 in conventional and
UK 1.012 1.279 Islamic banks
QRFM 4.000%
4,2/3
3.500%
3.000%
184
2.500%
2.000%
1.500%
1.000%
0.000%
Figure 2.
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Graphical presentation
at
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Ba
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of comparative BM
Pa
M
in conventional and
Islamic banking Conventional BM/TA Islamic BM/TA
expenses. Comparison of results reflected through Appendix 3, summarized in Table IV

and Figure 3.
This test reflects hybrid results of preceding both tests. NPIC in Islamic banking
remains higher than conventional in all countries except Bahrain. Prominent gap is
observed in UK followed by Kuwait and Malaysia.
D. Return on assets (ROA) in Islamic and conventional

This test finally reflects actual attraction in Islamic banking for investment and
placement of funds. Comparative results of both types of banking in selected countries
is shown in Appendix 4 and summarized in Table V and Figure 4.
Empirical results of above test reflect variant results. Bahrain, Pakistan and UK
have negative ROA in Islamic banks compared to positive ROA in conventional banks
in these countries. Kuwait and UAE Islamic banks show very less ROA compared with
its conventional where as Malaysian and Qatar Islamic banks have positive surplus
over conventional banks ROA.
Country Conventional NPC/TA (%) Islamic NPC/TA (%)
Bahrain 3.063 2.451

Kuwait 0.697 2.127
Table IV. Malaysia 0.728 2.245
Country-wise comparison Pakistan 3.302 4.291
of NPIC-to-bank size Qatar 0.352 0.522
(mean) in conventional UAE 1.183 2.214
and Islamic banks UK 0.784 3.373
0.05 Faith-based vs
conventional
0.04 banking
0.03
185
0.02
0.01
0
Figure 3.
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of comparative NPIC
Pa
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in conventional and
Islamic banking
Conventional NPC/TA Islamic NPC/TA
Country Conventional ROA (%) Islamic ROA (%)
Bahrain 0.173 2 0.606

Kuwait 1.805 0.659
Malaysia 1.220 1.475 Table V.
Pakistan 0.300 2 1.150 Country-wise comparison
Qatar 2.045 2.361 of ROA (mean)
UAE 2.302 0.344 in conventional and
UK 0.228 2 2.094 Islamic banks
Summarizing the results of applied empirical tests related to banks’ profitability, it has
been observed that Islamic banks reflect comparatively volatile results. Few economies
do impact individual organizations where negative or inverse trends are observed,
however, from investor perspective, Islamic banks are highly profitable.
Conclusion
One of the major reasons for fast nourishing Islamic financial world is the indigenous
financial results. Innovative product structuring to coup with conventional way of
banking is the major determinant for investors’ attraction. Central banks’ guidance and
money market approaches also support Islamic banking worldwide especially in binary
banking system. Shariyah strict following is the core challenge in Islamic banking which is
supervised by respective Shariyah supervisory boards. Other institutions like AAOIFI,
IIRA and IIFM also support, monitor and supervise these Islamic institutions. Various
researchers have proved from pragmatic results of financial crisis 2007-2008 that financial
institutions operating under Islamic principles endured operationally and technically.
Our research concluded that Islamic banking operations earn sound bank margin and
spread comparatively but has higher operational costs with need of improved risks
QRFM 0.03
4,2/3
0.025
0.02
186 0.015
0.01
0.005
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–0.005
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–0.01
–0.015
Figure 4. –0.02
of comparative ROA
in conventional and –0.025
Islamic banking
Conventional ROA Islamic ROA
management practices. Our observation is evident in six countries of binary banking

system and is further applied to UK banking system and found similar results on the
whole. Our limited scope has covered cross-sectional examination of banking system in
seven countries. Further study may be enhanced via time series analysis on same
grounds in same or other countries. Loan-losses (bad loans) could also be excluded to
ascertain actual bank spread. Some of the banks follow different practices and
sometimes invest major proportion of their funds in investment activities other than
customers such as bonds, derivatives, hedge funds, etc. bank spread of such financial
institutions deviate relatively however income from investment activities can be
included to ascertain bank spread in such institutions. Similarly some of IFIs focus on
earning through Murabaha and Sukuk rather direct customer based finances therefore
bank spread in such IFIs show comparatively different results.
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Avlonitis, G.F. and Indounas, K.A. (2006), “Pricing practices of services organizations”, Journal
of Services Marketing, Vol. 20 No. 5, pp. 346-56.
Hutapea, E.G. and Kasri, R.A. (2010), “Bank margin determination: a comparison between
Islamic and conventional banks in Indonesia”, International Journal of Islamic and Middle
Eastern Finance and Management, Vol. 3 No. 1, pp. 65-82.
QRFM Shakespeare, R. and Harahap, S. (2009), “The comparative role of banking in binary and Islamic
economy”, Humanomics, Vol. 25 No. 2, pp. 142-62.
4,2/3 Siam, J.J. and Khalid, S.M. (2010), “Nainar the evaluation of the Canadian BAX contract in
managing short-term interest rate exposure”, Review of Accounting and Finance, Vol. 9
No. 1, pp. 88-110.
188 About the authors

Shahid Muhammad Khan Ghauri, M.Phil, is a retail banker by profession and has been
associated with such banks as ABN AMRO Bank and The Royal Bank of Scotland. Currently, he
is working as Assistant Vice President in Faysal Bank Limited Pakistan. He is also author of a
book on Islamic Banking fundamentals.
Amal Sabah Obaid Qambar is based at Cardiff Metropolitan University, Cardiff, UK.
Amal Sabah Obaid Qambar is the corresponding author and can be contacted at:
amaqambar@cardiffmet.ac.uk
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints
Country Bank Spread (%) Bank Spread (%)
Bahrain Ahli United Bank 3.25 Al Baraka 10.50

Appendix 1
Bahrain Development Bank 3.98 Al Salam Bank 7.59
Bahrain Saudi Bank 11.37 Bahrain Islamic Bank 10.43
Bank of Bahrain & Kuwait 4.40 Ithmaar Bank 3.60
BMI Bank 4.36 Khaleeji Commercial Bank 4.93
Future Bank 10.53 Kuwait Finance House 1.24
Mean 6.32 Mean 6.38
Kuwait Burgan Bank 4.77 Ahli United Bank 5.14
Commercial Bank of Kuwait 4.05 Boubyan Bank 5.61
Gulf Bank 3.39 Kuwait Finance House 6.04
National Bank of Kuwait 3.27 Kuwait International Bank 4.46
Mean 3.87 Mean 5.31
Malaysia Affin Bank 1.02 Affin Bank 5.66
Am Bank 3.42 Alliance Islamic Bank 4.12
CIMB Bank 4.33 Am Islamic Bank 5.08
EON Bank 3.15 Bank Islam Malaysia 12.33
Hong Leong Bank 5.55 Bank Muamlat Malaysia 10.84
Public Bank 2.97 EONCAP Islamic Bank 3.39
Public Islamic Bank 4.21
Mean 3.41 Mean 6.52
Pakistan Allied Bank Ltd 3.82 Al Baraka Islamic Bank 1.23
Askari Commercial Bank 3.21 Bank Islami Pakistan 3.73
Bank Al Falah Ltd 2.30 Dawood Islamic Bank 2.70
Bank Al HabibLtd 2.67 Dubai Islamic Bank 4.27
Bank of Khyber 1.52 Meezan Bank 3.61
Bank of Punjab 0.82
Faysal Bank Ltd 1.71
First Women Bank 3.86
HabibBank Ltd 4.76
HabibMetropolitan Bank 1.56
JS Bank 1.29
(continued)
conventional
banking
Islamic banks in selected

Analysis of bank spread
among conventional and
countries
Faith-based vs
Table AI.
189
190
4,2/3
QRFM
Table AI.
Country Bank Spread (%) Bank Spread (%)
MCB Bank 5.89

National Bank of Pakistan 3.24
NIB Bank 1.04
Soneri Bank 1.73
Standard Chartered Bank 1.49
United Bank Limited 4.55
Mean 2.68 Mean 3.11
Qatar Ahli United Bank 2.60 Barwa Bank 0.90
Doha Bank 3.45 Masraf Al Rayan 4.24
International Bank of Qatar 1.93 Qatar International Islamic Bank 6.38
Qatar National Bank 1.81 Qatar Islamic Bank 4.28
The Commercial Bank of Qatar 3.74
Mean 2.71 Mean 3.95
UAE Abu Dhabi Commercial Bank 0.65 Dubai Bank 2.55
Arab Bank for Investment & Foreign Trade 4.58 Dubai Islamic Bank 2.63
Commercial Bank of Dubai 3.94 Emirates Islamic Bank 2.29
First Gulf Bank 4.56 Mashreq Bank 1.33
Mashreq Bank 5.94 Sharjah Islamic Bank 2.07
National Bank of Abu Dhabi 3.20 Union National Bank 3.62
National Bank of Qaiwain 6.49
RAK Bank 8.74
Union National Bank 3.10
United Arab Bank 4.78
Mean 4.60 Mean 2.42
UK Barclays Bank 2.51 European Islamic Investment Bank 1.13
HSBC 2.90 Islamic Bank of Britain 0.95
Lloyd Bank 0.42 London & Middle East Bank 5.28
Royal Bank of Scotland 2.42
Mean 2.06 Mean 2.45
Country Bank BM/TA (%) Bank BM/TA (%)

Appendix 2
Mean 3.24 Mean 1.85
Mean 2.50 Mean 2.79
Mean 1.95 Mean 3.72
Bank of Punjab 0.61
HabibBank Ltd 5.08
JS Bank 2.65
(continued)
conventional
banking
assets
Bank margin to total
Faith-based vs
Table AII.
191
192
4,2/3
QRFM
Table AII.
Country Bank BM/TA (%) Bank BM/TA (%)
MCB Bank 6.49

NIB Bank 1.79
Soneri Bank 2.82
Mean 3.60 Mean 3.14
Mean 2.40 Mean 2.88
First Gulf Bank 3.02 Sharjah Islamic Bank 2.70
Mashreq Bank 2.80
National Bank of Abu Dhabi 2.41
RAK Bank 7.52
Mean 3.49 Mean 2.56
Mean 1.01 Mean 1.28
Country Bank NPC/TA (%) Bank NPC/TA (%)

Appendix 3
Mean 3.06 Mean 2.45
Mean 0.70 Mean 2.13
Mean 0.73 Mean 2.25
Bank of Punjab 9.67
HabibBank Ltd 2.16
JS Bank 4.23
(continued)
conventional
banking
conventional banking
in Islamic and
Bank-wise
Faith-based vs
non-profit/interest costs
Table AIII.
193
194
4,2/3
QRFM
Table AIII.
Country Bank NPC/TA (%) Bank NPC/TA (%)
MCB Bank 1.86

NIB Bank 9.47
Soneri Bank 2.69
Mean 3.30 Mean 4.29
Doha Bank 0.69 Masraf Al Rayan 2 0.22
Qatar National Bank 2 0.48 Qatar Islamic Bank 0.50
Mean 0.35 Mean 0.52
Mashreq Bank 1.75
RAK Bank 2.83
Mean 1.18 Mean 2.21
Mean 0.78 Mean 3.37
Country Bank ROA (%) Bank ROA (%)

Appendix 4
BMI Bank 2 4.41 Khaleeji Commercial Bank 21.43
Mean 0.17 Mean 20.61
Mean 1.80 Mean 0.66
Mean 1.22 Mean 1.48
Bank of Punjab 2 9.05
HabibBank Ltd 2.92
JS Bank 2 1.58
(continued)
conventional
banking
banking
ROA in Islamic and
conventional mode of
Table AIV.
Faith-based vs
195
196
4,2/3
QRFM
Table AIV.
Country Bank ROA (%) Bank ROA (%)
MCB Bank 4.63

NIB Bank 27.68
Soneri Bank 0.13
Mean 2.04 Mean 2.36
Mashreq Bank 1.04
RAK Bank 4.69
Mean 2.30 Mean 0.34
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Qualitative Research in Financial Markets: Article Information

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Rewards in faith-based vs conventional banking

*Related content and download information correct at time of download.

A. Bank spread (BS) of Islamic and conventional banking

Profit earned from customers Profit paid to customers

B. Bank margin (BM) to total assets (TASSETS)

D. Return on assets (ROA) in Islamic and conventional

Retail banks Conventional Islamic Deposits

Bahrain (BD) 30 15 12 24 9 6 6 6 6 8 billion 6 billion 75

Discussion and empirical results

A. Bank spread (BS) of Islamic and conventional banking

Bahrain 6.315 6.380

B. Bank margin (BM) to total assets (TASSETS)

C. Non-profit/interest costs to bank size in Islamic and conventional

Country Conventional BM/TA (%) Islamic BM/TA (%)

Bahrain 3.237 1.845

expenses. Comparison of results reflected through Appendix 3, summarized in Table IV

D. Return on assets (ROA) in Islamic and conventional

Country Conventional NPC/TA (%) Islamic NPC/TA (%)

Bahrain 3.063 2.451

Country Conventional ROA (%) Islamic ROA (%)

Bahrain 0.173 2 0.606

management practices. Our observation is evident in six countries of binary banking

188 About the authors

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Bahrain Ahli United Bank 3.25 Al Baraka 10.50

Islamic banks in selected

MCB Bank 5.89

Bahrain Ahli United Bank 2.70 Al Baraka 4.15

MCB Bank 6.49

Bahrain Ahli United Bank 1.60 Al Baraka 2.16

MCB Bank 1.86

Bahrain Ahli United Bank 1.10 Al Baraka 1.99

MCB Bank 4.63

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