“Financial Analysis of 5 Commercial
Banks & 5 Islamic Banks For the last
6 years”
With Dr. Muhammad Hanif
Name:
ID:
Ahmad Ghassan Alshaikh
201411571
Mustapha Hassan Mansour
201410310
Mahmoud Abdallah
201411855
Khalid Albinali
201320180
Mohammed Alshehri
201320290
1
CONTENTS
Introduction ……..………………….
Overview of UAE Banking sector
…….………………………………
6
Commercial Banks:
1. United Arab Bank ……………………………………..
8
2. United National Bank .…….…….…………….…...
10
3. Emirates NBD Bank ……………..…………………..
11
4. Dubai Commercial Bank….…………………….…
13
5. Invest Bank……………………………………………..
14
Islamic Banks:
1. Noor Bank……………………………………………...
16
2. Dubai Islamic Bank ………………………………..
18
3. Sharjah Islamic Bank …….…………………….…
20
4. Ajman Bank………….………………………………..
21
5. Emirates Islamic Bank…………………..……....
23
Literature Review ……………..……….……….…….…………….…...
24
Ratios..…….….……..….….…….….………….….…….….……..….….…….
26
Comparing between commercial banks & Islamic banks (Graphs)…………….
27
Results, Analysis and Discussions………………….……………..……....
32
Conclusion.……..……………..………………………..……………..………..
34
References…….……………..………………………..……………..…………
35
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Introduction :
The growth of any economy to a great extent depends largely on the
performance of its banking sector. The banking sector works as
intermediary linking two parties; who gave the funds and the other
party who invested the funds for productive purposes and thereby
contributing to economic development. In the financial world, there are
two types of banks. One is called commercial banking sector and the
other is called Islamic banking sector. The main difference between
the two types of bank sectors is the philosophy in which the banking
sector depends on. In Islamic banking sector, the interest rate is totally
prohibited even it is small or large. Therefore, sometimes, it is called
interest-free banking. In the other side, commercial banks are based
totally on interest. So, it is called interest-based banks. Nowadays,
Islamic banks and commercial banks are working together in a dual
regulatory environment and there is a competition between them in
attracting potential customers and fulfilling their expectations and
developing new instruments and modes of financing which in turn
benefits the economy in the long-term.
In the United Arab Emirates, the two types of banks are working
together in a very competitive environment. Recently, Islamic banks
enhance their position in the world and particularly in the UAE during
the global financial crisis 2008. Islamic banks are partially affected
by the crisis and outperformed than commercial banks
(Athanasoglou et al., 2005; Tabash and Dhankar, 2014). Also, from
another side, Islamic banks contributed positively to the growth of
the economy of UAE (Tabash and Anagreh, 2017).
The United Arab Emirates (UAE) gives more attention and support for
Islamic banking industry. For example, Dubai Emirate is working on
to become a hub for Islamic finance industry in the world. The UAE
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government supports the Islamic banking industry growth through its
strategic plan 2021 (Emirates Diary, 2015). Currently, there are
twenty-three local banks and twenty-two international banks working
in the UAE. Out of the twenty three local banks, seven are fully–
fledged Islamic banks working under Islamic standards as appeared in
appendix (1) and the rest banks have both system, Islamic and
traditional operations (Emirates Diary, 2015).
Islamic banking sector accounts for 80% of total Islamic finance
assets. Organizations like “Ernst & Young, 2015” and the Malaysia
Islamic Financial Centre (MIFC) have predicted that the size of the
Islamic finance market will reach U.S $3.4 trillion by end of 2018,
whilst Pricewaterhouse Coopers (PwC) predicts a U.S $2.7 trillion
market by 2017 (Islamic Finance Report, 2016). In the most of Middle
East region countries, the assets of Islamic banking assets are
growing faster than commercial banking assets. There are also a huge
demand for Islamic banks products from non-Muslim countries like
Malaysia, U.K, Germany and Hong Kong (World Bank report, 2015).
Liquidity, profitability and solvency are the different dimensions of the
performance of any bank. Each of these dimensions is equally
important as it plays a vital role in the maintenance of the bank
financial viability. If the bank is financially viable it would be able to
survive for a long time in the future. The 2008 global financial crisis
has made a query on the persistent and increasing fragility of the
financial institutions not only in U.S. but also at a global level. Banks
have weak capital structure to provide liquidity to interested parties on
time. Due to this capital structure, banks are often at the spot in the
financial crisis (Diamond and Rajan, 2001). Therefore, the recent
global financial crisis has brought to the surface the importance of
bank performance and profitability both at national and international
level.
The banks has an increasing significance in emerging countries
because banks are the major source of finance and funding for the
majority of firms and are main depository to encourage people for the
saving (Athanasoglou et al., 2008). UAE banks are the major financial
intermediaries as they are playing a vital role in the economic
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development of the country. UAE banks have performed well
during the recent financial turmoil, as it is evident from its annual
credit growth and profitability. In the light of using technology,
new generation of both banking types have gained a reasonable
position in the banking industry. In this competitive environment, it
becomes essential to measure the performance of the banks
especially of Islamic banks and commercial banks. So, the main focus
of this study is to look into whether the performance of Islamic banks
is different from the conventional banks with respect to profitability,
liquidity and solvency in UAE and to determine the determinants of
profitability for both Islamic and commercial banks.
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Overview of UAE Banking sector:
The UAE banking sector is still in recovery stage, post the 2008-2009
real estate crises in Dubai. However, the financial performance of the
banks has stabilized especially over the past couple of years. The
UAE banks, particularly Dubai based banks, are facing asset quality
challenges, as reflected in their high proportion of non-performing
loans and low level of provisions.
On the other hand, Abu Dhabi based banks appear relatively less
challenged from these issues due to their relatively lower exposure to
real estate and higher exposure to oil based industries, which did
well amid favorable oil price environment.
The key concerns related to the UAE banks include i) concentration in
loans and deposits, ii) high proportion of related party exposures, iii)
limited data transparency/availability, and iv) stiff industry competition.
Moreover, the performance of the UAE banks has been constrained
by the still recovering real estate and construction sectors. Although
the banks maintain a strong presence in their local markets, the
banking sector has limited diversification and displays concentration
in terms of geographies, products, and customers.
The Central Bank is entrusted with the task of organizing banks in
upgrading their management and to ensure their financial
soundness. Circulars and regulations are being issued from time to
time by the Central Bank to achieve this objective. The Central Bank
is also continuously studying various ways and means to make the
UAE a noted regional financial center.
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Banks in the UAE are divided into two major categories:
– Locally Incorporated Banks – these are public shareholding
companies licensed in accordance with provisions of Union Law
No. (10) Of 1980,
and
– Branches of Foreign Banks which have obtained Central Bank’s
licenses to operate in the country as per provisions of the said Law.
Historically, national banks (with majority national shareholding) and
foreign banks existed prior to the establishment of the former