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Islamic Banking and Financial CrisisReputation, Stability and Risks$
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Habib Ahmed, Mehmet Asutay, and Rodney Wilson

Print publication date: 2013

Print ISBN-13: 9780748647613

Published to Edinburgh Scholarship Online: May 2014

DOI: 10.3366/edinburgh/9780748647613.001.0001

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Assessing the Resilience of Islamic Banks: An Empirical Analysis

Assessing the Resilience of Islamic Banks: An Empirical Analysis

(p.40) 3 Assessing the Resilience of Islamic Banks: An Empirical Analysis
Islamic Banking and Financial Crisis

Rania Abdelfattah Salem

Ahmed Mohamed Badreldin

Edinburgh University Press

This chapter examines the performance of leading Islamic banks before and during the financial crisis of 2008 based on standard measures such as return on equity, cost-income ratios and risk provision margins. Analysis of the banks’ financial statements from 2003 to 2009 shows that Islamic banks performed well during the financial crisis, but reveals significant differences between the banks. All sample Islamic banks demonstrated relatively stable profitability and a considerable increase in impairment provisions. Furthermore, Islamic banks use different strategies in managing their financing activities and investment deposits. Finally, avoidance of ‘toxic assets’, which is associated with excessive risk-taking behaviour, has contributed to the banks’ resilience amid the financial crisis.

Keywords:   financial crisis, Islamic banks, return on equity, cost-income ratios, risk provision, financial statements, profitability, impairment provisions, investment deposits, toxic assets

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