CAMEL CHARACTERISTICS, FINANCIAL PERFORMANCE AND STABILITY OF SELECTED ISLAMIC BANKING IN MALAYSIA
Keywords:
CAMEL, financial performance, financial stability, islamic banking, Malaysia
Abstract
In Malaysia, the remarkable performance and stability of Islamic subsidiaries of conventional banks have forefront leading in Islamic banking business. This research attempts evaluating the financial performance and stability elements in two full-fledged and two Islamic subsidiaries of conventional banks for eight years (2010-2017). In this research, the profitability is the return on assets (ROA) and stability measures are z-score. The elements of CAMEL framework is denoted as internal determinants by selecting the appropriate ratios of capital adequacy, asset quality, management competency, earning quality and liquidity through hand-collected information provided by the bank websites. Moreover, correlations and regression tests (FEM and GMM) are used to examine the relationships and significance of CAMEL as independent variables with financial performance and stability of Islamic banking. According to determinants of profitability, the assets quality, management efficiency, earning quality and liquidity of Islamic banks supported the return significantly. Instability, the financial stability indicators found to be powerfully critical to assets quality, management efficiency and liquidity. The findings of this research may have thoughtful practical implications on the financial performance and stability analysis of Islamic banking industry. This research provides the practitioner, regulator and researchers consciousness to expand knowledge on CAMEL framework for standardization on performance and stability comparison of banking industry
References
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Abdulazeez, Y. H. Saif-Alyousfi, Asish, S., & Md-Rus, R. (2017). Shareholders’ value of Saudi commercial banks: A comparative evaluation between Islamic and conventional banks using CAMEL parameters. International Journal of Economics and Financial Issues, 7(February), 97–105.
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Ahsan, M. K. (2016). Measuring Financial Performance Based on CAMEL : A Study on Selected Islamic Banks in Bangladesh. Asian Business Review, 6(1), 47–56. https://doi.org/10.18034
Alemu, M., & Aweke, M. (2017). Financial performance analysis of private commercial banks of Ethiopia : Camel ratings. International Journal of Scientific and Research Publications, 7(10), 367–395.
Alharbi, A. T. (2015). Determinants of Islamic banks’ profitability: International evidence. International Journal of Islamic and Middle Eastern Finance and Management.
Alharthi, M. (2017). Financial performance and stability in Islamic banks: Evidence from GCC countries. Corporate Ownership & Control, 14(4). https://doi.org/10.22495/cocv14i4art9
Aliyu, S., & Yusof, R. M. (2016). Profitability and cost efficiency of Islamic banks : A panel analysis of some selected countries. International Journal of Economics and Financial Issues, 6(4), 1736–1743.
Apere, T. O. (2016). Return on assets and apital adequacy of banks in Nigeria. Advances in Social Sciences Research Journal, 3(12), 139–149. https://doi.org/10.14738/assrj.312.2117
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Čihák, M., & Hesse, H. (2010). Islamic banks and financial stability: An empirical analysis. In IMF Working Paper (No. 08). https://doi.org/10.1007/s10693-010-0089-0
Ebrahimi, S. K., Bahraminasab, A., & Seyedi, F. S. (2017). Performance assessment of banks listed on Tehran Stock Exchange based on CAMEL indicators. International Journal of Economics and Financial Issues, 7(5), 128–136.
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Hunjra, A. I., & Bashir, A. (2014). Comparative financial performance analysis of conventional and Islamic banks in Pakistan. Bulletin of Business and Economics, 3, 196–206.
Husain, A., Affandi, S., & Shukur, N. A. (2015). The internal determinants of Islamic banks’ profitability in Malaysia. Journal of Basic and Applied Scientific Research, 5(7), 17–21.
Husna, H. N., & Rahman, R. A. (2012). Financial distress – Detection model for Islamic banks. International Journal of Trade, Economics and Finance, 3(3).
Irfan, M., Majeed, Y., & Zaman, K. (2014). The performance and efficiency of Islamic banking in South Asian countries. Economia Seria Management, 17(2), 223–237.
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Issah, O., & Ngmenipuo, I. M. (2015). An empirical study of the relationship between profitability ratios and market share prices of publicly traded banking financial institutions in Ghana. International Journal of Economic, Commerce and Management, III(12), 27–42.
Javaid, S., & Alalawi, S. (2018). Performance and profitability of Islamic banks in Saudi Arabia: An empirical analysis. Asian Economic and Financial Review, 8(1), 38–51. https://doi.org/10.18488/journal.aefr.2018.81.38.51
Kumar, V., & Sayani, H. (2015). Application of CAMEL model on the GCC Islamic banks: 2008-2014. Journal of Islamic Banking and Finance, 3(2), 1–14. https://doi.org/10.15640/jibf.v3n2a1
Masood, O., Khan Ghauri, S. M., & Aktan, B. (2016). Predicting Islamic banks performance through CAMELS rating model. Banks and Bank Systems, 11(3), 37–43. https://doi.org/10.21511/bbs.11(3).2016.04
Mohanty, B., & Mehrotra, S. (2018). The effect of liquidity management on profitability : A comparative analysis of public and private sector banks in India. The IUP Journal of Bank Management, XVII(NO.1), 8–20.
Muhmad, S. N., & Hashim, H. A. (2015). Using the Camel Framework in Assessing Bank Performance in Malaysia. International Journal of Economics, Management and Accounting, 23(1), 109–127.
Murni, Y., Astuti, T., Nisa, C., & Djaddang, S. (2017). Using CAMEL To Predict Management Behavior In Indonesia’s Sharia Bank. IOSR Journal of Business and Management, 19(03), 01–04. https://doi.org/10.9790/487X-1903030104
Obeidat, Z. M., Khasawneh, A. S., & Altal, A. F. (2017). Impact of liquidity risk on the profitability of Jordanian Islamic banks. European Journal of Business and Management, 9(21), 64–74.
Olalekan, A., & Adeyinka, S. (2013). Capital adequacy and banks’ profitability: An empirical evidence from Nigeria. American International Journal of Comtemporary Research, 3(10), 87–93.
Olweny, T., & Shipho, T. M. (2011). Effects of banking sectoral factors on the profitability of commercial banks in Kenya. Economic and Finance Review, 1(5), 1–30. https://doi.org/10.1016/j.jeurceramsoc.2006.04.065
Qasim, Y., Yazis, M., & Ibrahim, N. (2017). Measuring the performance of Jordanian Islamic banks. Journal of Public Administration and Governance, 7(1), 25–47. https://doi.org/10.5296/jpag.v7i1.10575
Rahman, M. M., & Akhter, S. (2015). Bank-specific factors influencing profitability of Islamic banks in Bangladesh. Journal of Business and Technology (Dhaka), Volume –X(01), 16.
Rajhi, W., & Hassairi, S. A. (2013). Islamic banks and financial stability : A comparative empirical analysis between MENA and Southeast Asian coutries. Région et Développement, (37), 150–176.
Rashid, N. M. N., Muhmad, S. N., Hamid, N. A., Rasit, A., & Noor, R. M. (2017). Sustainability of Camel framework as a performance evaluator for banking industry. World Applied Sciences Journal, 35(9), 1839–1843. https://doi.org/10.5829/idosi.wasj.2017.1839.1843
Rasul, L. M. (2013). Impact of liquidity on Islamic banks ’ profitability : Evidence from Bangladesh. Acta Universitatis Danubius, 9(2), 23–36.
Rosly, S. A., & Abu Bakar, M. A. (2003). Performance of Islamic and mainstream banks in Malaysia. International Journal of Social Economics, 30(11–12), 1249–1265. https://doi.org/10.1108/03068290310500652
Rozzani, N., & Rahman, R. A. (2013). Camels and Performance Evaluation of Banks in Malaysia: Conventional Versus Islamic. Journal of Islamic Finance and Business …, 2(1), 36–45. Retrieved from http://www.wbiaus.org/3. Nalilah.pdf
Sahut, J. M., & Mili, M. (2011). Banking distress in MENA countries and the role of mergers as a strategic policy to resolve distress. Economic Modelling, 28(1–2), 138–146. https://doi.org/10.1016/j.econmod.2010.09.017
Saif-Alyousfi, A. Y. H., Saha, A., & Md-Rus, R. (2017). Profitability of Saudi commercial banks: A comparative evaluation between domestic and foreign banks using capital adequacy, asset quality, management quality, earning ability and liquidity parameters. International Journal of Economics and Financial Issues, 7(2), 477–484.
Samail, N. A., Zaidi, N. S., Mohamed, A. S., & Kamaruzaman, M. N. (2018). Determinants of financial performance of Islamic banking in Malaysia. International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(4), 21–29. https://doi.org/10.6007/IJARAFMS/v8-i4/5182
Sapuan, N. M., Bakar, S., & Ramlan, H. (2017). Predicting the performance and survival of Islamic banks in Malaysia to achieve growth sustainability. SHS Web of Conferences, 36, 00016. https://doi.org/10.1051/shsconf/20173600016
Sarker, A. A. (2006). CAMELS rating system in the context of Islamic banking: A proposed “S” for shariah framework. Journal of Islamic Economics, Banking and Finance, 2(2), 1–26.
Setyawati, I., Suroso, S., Suryanto, T., & Nurjannah, D. S. (2017). Does financial performance of Islamic banking is better? Panel data estimation. European Research Studies Journal, 20(2), 592–606.
Shar, A. H., Shah, M. ali, & Jamali, H. (2010). Performance evaluation of banking sector in Pakistan: An application of bankometer. International Journal of Business and Management, 5(9), 81–86. https://doi.org/10.5539/ijbm.v5n9p81
Tahraoui, A., & Khadidja, K. (2015). Determinants of capital adequacy ratio in Malaysia Islamic banks (A panel data analysis). International Research Journal of Finance and Economics, (129). https://doi.org/10.5897/ajbm11.1957
Wanke, P., Azad, M. A. K., & Barros, C. P. (2016). Financial distress and the Malaysian dual baking system: A dynamic slacks approach. Journal of Banking and Finance, 66, 1–18. https://doi.org/10.1016/j.jbankfin.2016.01.006
Wasiuzzaman, S., & Ahmad Tarmizi, H. A. (2010). Profitability of Islamic banks in Malaysia : An empirical analysis. Journal of Islamic Economics, Banking and Finance, 6(4).
Xu, T., Hu, K., & Das, S. U. (2019). Bank profitability and financial stability. In IMF Working Papers (Vol. 19). https://doi.org/10.5089/9781484390078.001
Youssef, A., & Samir, O. (2015). A comparative study on the financial performance between Islamic and conventional banks : Egypt case. The Business and Management Review, 6(4), 10–11.
Abduh, M., Hasan, S. M., & Pananjung, A. G. (2013). Efficiency and performance of Islamic banks in Bangladesh. Journal of Islamic Banking and Finance, (April-June), 94–106.
Abdul Karim, N., Alhabshi, S. J. S. M., Kassim, S., & Haron, R. (2018). Measuring bank stability: A comparative analysis between Islamic and conventional banks in Malaysia. In Springer Nature Singapore Pte Ltd. https://doi.org/10.1007/978-981-10-6053-3
Abdulazeez, Y. H. Saif-Alyousfi, Asish, S., & Md-Rus, R. (2017). Shareholders’ value of Saudi commercial banks: A comparative evaluation between Islamic and conventional banks using CAMEL parameters. International Journal of Economics and Financial Issues, 7(February), 97–105.
Abu Hanifa, M. N. (2015). An empirical investigation of profitability of Islamic banks in Bangladesh. Global Journal of Management and Business Research: C Finance, 15(4), 10–22. https://doi.org/10.1002/dir
Ahsan, M. K. (2016). Measuring Financial Performance Based on CAMEL : A Study on Selected Islamic Banks in Bangladesh. Asian Business Review, 6(1), 47–56. https://doi.org/10.18034
Alemu, M., & Aweke, M. (2017). Financial performance analysis of private commercial banks of Ethiopia : Camel ratings. International Journal of Scientific and Research Publications, 7(10), 367–395.
Alharbi, A. T. (2015). Determinants of Islamic banks’ profitability: International evidence. International Journal of Islamic and Middle Eastern Finance and Management.
Alharthi, M. (2017). Financial performance and stability in Islamic banks: Evidence from GCC countries. Corporate Ownership & Control, 14(4). https://doi.org/10.22495/cocv14i4art9
Aliyu, S., & Yusof, R. M. (2016). Profitability and cost efficiency of Islamic banks : A panel analysis of some selected countries. International Journal of Economics and Financial Issues, 6(4), 1736–1743.
Apere, T. O. (2016). Return on assets and apital adequacy of banks in Nigeria. Advances in Social Sciences Research Journal, 3(12), 139–149. https://doi.org/10.14738/assrj.312.2117
Ariff, M. (2017). Islamic banking in Malaysia: The changing landscape. Institutions and Economies, 9(2), 1–13.
Bank Negara Malaysia. (2017). Islamic funds: Gearing up.
Čihák, M., & Hesse, H. (2010). Islamic banks and financial stability: An empirical analysis. In IMF Working Paper (No. 08). https://doi.org/10.1007/s10693-010-0089-0
Ebrahimi, S. K., Bahraminasab, A., & Seyedi, F. S. (2017). Performance assessment of banks listed on Tehran Stock Exchange based on CAMEL indicators. International Journal of Economics and Financial Issues, 7(5), 128–136.
Flamini, V., Schumacher, L., & McDonald, C. (2009). The determinants of commercial bank profitability in Sub-Saharan Africa. In IMF Working Papers (Vol. 09). https://doi.org/10.5089/9781451871623.001
Ghassan, H. B., & Krichene, N. (2017). Financial stability of conventional and Islamic banks: A survey. MPRA Paper, (82372).
Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics. New York: McGraw-Hill.
Hunjra, A. I., & Bashir, A. (2014). Comparative financial performance analysis of conventional and Islamic banks in Pakistan. Bulletin of Business and Economics, 3, 196–206.
Husain, A., Affandi, S., & Shukur, N. A. (2015). The internal determinants of Islamic banks’ profitability in Malaysia. Journal of Basic and Applied Scientific Research, 5(7), 17–21.
Husna, H. N., & Rahman, R. A. (2012). Financial distress – Detection model for Islamic banks. International Journal of Trade, Economics and Finance, 3(3).
Irfan, M., Majeed, Y., & Zaman, K. (2014). The performance and efficiency of Islamic banking in South Asian countries. Economia Seria Management, 17(2), 223–237.
Islamic Financial Services Board. (2019). Islamic Financial Services Industry Stability Report 2019.
Issah, O., & Ngmenipuo, I. M. (2015). An empirical study of the relationship between profitability ratios and market share prices of publicly traded banking financial institutions in Ghana. International Journal of Economic, Commerce and Management, III(12), 27–42.
Javaid, S., & Alalawi, S. (2018). Performance and profitability of Islamic banks in Saudi Arabia: An empirical analysis. Asian Economic and Financial Review, 8(1), 38–51. https://doi.org/10.18488/journal.aefr.2018.81.38.51
Kumar, V., & Sayani, H. (2015). Application of CAMEL model on the GCC Islamic banks: 2008-2014. Journal of Islamic Banking and Finance, 3(2), 1–14. https://doi.org/10.15640/jibf.v3n2a1
Masood, O., Khan Ghauri, S. M., & Aktan, B. (2016). Predicting Islamic banks performance through CAMELS rating model. Banks and Bank Systems, 11(3), 37–43. https://doi.org/10.21511/bbs.11(3).2016.04
Mohanty, B., & Mehrotra, S. (2018). The effect of liquidity management on profitability : A comparative analysis of public and private sector banks in India. The IUP Journal of Bank Management, XVII(NO.1), 8–20.
Muhmad, S. N., & Hashim, H. A. (2015). Using the Camel Framework in Assessing Bank Performance in Malaysia. International Journal of Economics, Management and Accounting, 23(1), 109–127.
Murni, Y., Astuti, T., Nisa, C., & Djaddang, S. (2017). Using CAMEL To Predict Management Behavior In Indonesia’s Sharia Bank. IOSR Journal of Business and Management, 19(03), 01–04. https://doi.org/10.9790/487X-1903030104
Obeidat, Z. M., Khasawneh, A. S., & Altal, A. F. (2017). Impact of liquidity risk on the profitability of Jordanian Islamic banks. European Journal of Business and Management, 9(21), 64–74.
Olalekan, A., & Adeyinka, S. (2013). Capital adequacy and banks’ profitability: An empirical evidence from Nigeria. American International Journal of Comtemporary Research, 3(10), 87–93.
Olweny, T., & Shipho, T. M. (2011). Effects of banking sectoral factors on the profitability of commercial banks in Kenya. Economic and Finance Review, 1(5), 1–30. https://doi.org/10.1016/j.jeurceramsoc.2006.04.065
Qasim, Y., Yazis, M., & Ibrahim, N. (2017). Measuring the performance of Jordanian Islamic banks. Journal of Public Administration and Governance, 7(1), 25–47. https://doi.org/10.5296/jpag.v7i1.10575
Rahman, M. M., & Akhter, S. (2015). Bank-specific factors influencing profitability of Islamic banks in Bangladesh. Journal of Business and Technology (Dhaka), Volume –X(01), 16.
Rajhi, W., & Hassairi, S. A. (2013). Islamic banks and financial stability : A comparative empirical analysis between MENA and Southeast Asian coutries. Région et Développement, (37), 150–176.
Rashid, N. M. N., Muhmad, S. N., Hamid, N. A., Rasit, A., & Noor, R. M. (2017). Sustainability of Camel framework as a performance evaluator for banking industry. World Applied Sciences Journal, 35(9), 1839–1843. https://doi.org/10.5829/idosi.wasj.2017.1839.1843
Rasul, L. M. (2013). Impact of liquidity on Islamic banks ’ profitability : Evidence from Bangladesh. Acta Universitatis Danubius, 9(2), 23–36.
Rosly, S. A., & Abu Bakar, M. A. (2003). Performance of Islamic and mainstream banks in Malaysia. International Journal of Social Economics, 30(11–12), 1249–1265. https://doi.org/10.1108/03068290310500652
Rozzani, N., & Rahman, R. A. (2013). Camels and Performance Evaluation of Banks in Malaysia: Conventional Versus Islamic. Journal of Islamic Finance and Business …, 2(1), 36–45. Retrieved from http://www.wbiaus.org/3. Nalilah.pdf
Sahut, J. M., & Mili, M. (2011). Banking distress in MENA countries and the role of mergers as a strategic policy to resolve distress. Economic Modelling, 28(1–2), 138–146. https://doi.org/10.1016/j.econmod.2010.09.017
Saif-Alyousfi, A. Y. H., Saha, A., & Md-Rus, R. (2017). Profitability of Saudi commercial banks: A comparative evaluation between domestic and foreign banks using capital adequacy, asset quality, management quality, earning ability and liquidity parameters. International Journal of Economics and Financial Issues, 7(2), 477–484.
Samail, N. A., Zaidi, N. S., Mohamed, A. S., & Kamaruzaman, M. N. (2018). Determinants of financial performance of Islamic banking in Malaysia. International Journal of Academic Research in Accounting, Finance and Management Sciences, 8(4), 21–29. https://doi.org/10.6007/IJARAFMS/v8-i4/5182
Sapuan, N. M., Bakar, S., & Ramlan, H. (2017). Predicting the performance and survival of Islamic banks in Malaysia to achieve growth sustainability. SHS Web of Conferences, 36, 00016. https://doi.org/10.1051/shsconf/20173600016
Sarker, A. A. (2006). CAMELS rating system in the context of Islamic banking: A proposed “S” for shariah framework. Journal of Islamic Economics, Banking and Finance, 2(2), 1–26.
Setyawati, I., Suroso, S., Suryanto, T., & Nurjannah, D. S. (2017). Does financial performance of Islamic banking is better? Panel data estimation. European Research Studies Journal, 20(2), 592–606.
Shar, A. H., Shah, M. ali, & Jamali, H. (2010). Performance evaluation of banking sector in Pakistan: An application of bankometer. International Journal of Business and Management, 5(9), 81–86. https://doi.org/10.5539/ijbm.v5n9p81
Tahraoui, A., & Khadidja, K. (2015). Determinants of capital adequacy ratio in Malaysia Islamic banks (A panel data analysis). International Research Journal of Finance and Economics, (129). https://doi.org/10.5897/ajbm11.1957
Wanke, P., Azad, M. A. K., & Barros, C. P. (2016). Financial distress and the Malaysian dual baking system: A dynamic slacks approach. Journal of Banking and Finance, 66, 1–18. https://doi.org/10.1016/j.jbankfin.2016.01.006
Wasiuzzaman, S., & Ahmad Tarmizi, H. A. (2010). Profitability of Islamic banks in Malaysia : An empirical analysis. Journal of Islamic Economics, Banking and Finance, 6(4).
Xu, T., Hu, K., & Das, S. U. (2019). Bank profitability and financial stability. In IMF Working Papers (Vol. 19). https://doi.org/10.5089/9781484390078.001
Youssef, A., & Samir, O. (2015). A comparative study on the financial performance between Islamic and conventional banks : Egypt case. The Business and Management Review, 6(4), 10–11.
Published
2020-07-05
How to Cite
Rasli, S., Hassan, N. H., Mohd Hajali, S. H., Kamis, J., & Abdul Samad, N. (2020). CAMEL CHARACTERISTICS, FINANCIAL PERFORMANCE AND STABILITY OF SELECTED ISLAMIC BANKING IN MALAYSIA. Selangor Science & Technology Review (SeSTeR), 4(3), 50-64. Retrieved from https://sester.journals.unisel.edu.my/ojs/index.php/sester/article/view/167
Section
Articles in English
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