2 research outputs found

    Predicting Distress in Islamic Banks: The Effectiveness of Capital Measures in CAMELS Framework

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    This study aims to identify key capital adequacy measures and other parameters that effectively predict distress in Islamic banks taking a panel of 65 banks from 13 countries between 2008-2017 using logistic regression model. The paper also intends to see whether simpler ratios perform better than more complex, risk weighted measures in predicting distress in these banks. A total of nine alternative capital and leverage indicators are used in the model that mainly rely on financial and accounting data, which are supplemented by the addition of market leverage for listed banks. In order to capture variability in cross country analysis and impact of economic conditions and shocks, the study also adds several macroeconomic indicators in the model. The results suggest that most of the standard CAMELS indicators are relevant for studying distress in Islamic banks. Further, it is shown that three other capital ratios – Tier 1, tangible common ratio and market leverage - are equally effective in studying Islamic bank failures. The findings, however, reflect that Basel III leverage ratio and other accounting-based ratios do not offer effective early warning signals of Islamic bank stress. Overall, equity based risk-weighted capital ratios offer a more robust framework of regulation and supervision in Islamic banks

    Determinants of capital structure decisions among publicly listed Islamic banks

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    This research aims to examine bank specific, market and regulatory determinants of leverage and capital structure based on a panel data of publicly listed Islamic banks in 12 countries over the peri-od 2008-2017. Apart from testing standard corporate finance parameters using both OLS and M-Estimators, this study adds several idiosyncratic and regulatory environment related determinants of leverage unique to Islamic banks. The significance of potential determinants is tested for market and book leverage as well as newly introduced ‘Islamic banking leverage’. Overall, the results show that Islamic banks with higher growth opportunities, tangibility, low profitability and low risk are likely to have a high leverage. Similarly, the findings suggest important role played by debt market conditions, share of investment accounts and regulatory environment in such decisions, providing an evidence of the significance of trade-off and pecking order theory in capital structure in Islamic banks. The results are more robust for market and Islamic banking leverage, rather than book leverage. The findings offer insights to regulators, standard setters and especially Islamic banks regarding parameters to strengthen their capital, enhance resilience and thus contribute to the stability of relevant financial. This paper is among the few extant studies that focus on listed Islamic banks and tests de-terminants based on stock market data
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