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Analyzing Sharia Supervision Effects on the Performance of Islamic Banks: Evidence from the GCC Countries

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Book cover Explore Business, Technology Opportunities and Challenges ‎After the Covid-19 Pandemic (ICBT 2022)

Part of the book series: Lecture Notes in Networks and Systems ((LNNS,volume 495))

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Abstract

Purpose – This study analyzes the effects of Sharia supervision and corporate governance variables on the performance of Islamic banks (IBs) in the Gulf Cooperation Council (GCC) countries.

Design/methodology/approach – This study uses a dynamic panel regression model to analyze persistence in bank performance and estimates the results using the generalized method of moments (GMM) estimator. A sample of 27 full-fledged Islamic banks from 2005 to 2019 in six countries from the GCC.

Findings – The results reveal that Sharia supervision-and corporate governance-related variables are more significant in determining the performance of Islamic banks. Furthermore, the results show that bank size, the capital adequacy ratio, growth, and inflation are significant and positive determinants of Islamic banks’ financial performance.

Practical implications – The analysis undertaken in this study addresses the literature gaps regarding the effect of Sharia supervision on Islamic bank performance, suggesting recommendations for implementing corporate governance guidelines for Islamic banks to improve current practices.

Originality/value – Despite existing studies on the relationship between Sharia governance and performance and to the best of the author’s knowledge, this study is the first attempt to investigate the impact of Sharia supervision on Islamic bank performance in the GCC. In addition, this study enriches our understanding of the fundamental role of Sharia supervision in Islamic banks.

Paper type Research paper.

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Notes

  1. 1.

    Banks differ from other joint-stock companies because the collapse of banks affects a wider circle of people and weakens the financial system, which has a negative impact on overall economy.

  2. 2.

    Only the full-fledged Islamic banking data are used in the computation of both ROA and ROE (IFSB 2020, p. 57).

  3. 3.

    (AAOIFI) and (IFSB) is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Shari’a standards for Islamic financial institutions and the industry.

  4. 4.

    Islamic banks are exposed to certain risks associated with the features of legitimate contracts of Islamic financing and include: Credit risk, Equity investment risk, Market risk, Rate of return risk, Liquidity risk, Operational risk.

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Author information

Authors and Affiliations

  1. Islamic Economics, Umm Al-Qura University, Makkah, Saudi Arabia

    Abdulhadi Abdulrahim Tashkandi

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  1. Abdulhadi Abdulrahim Tashkandi
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Correspondence to Abdulhadi Abdulrahim Tashkandi .

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Editors and Affiliations

  1. Northern Cyprus Campus, R-141 , KKTC, Middle East Technical University, Kalkanli, Güzelyurt, Turkey

    Bahaaeddin Alareeni

  2. Col of Business & Finance, Building 41, Ahlia University, Manama, Bahrain

    Allam Hamdan

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Tashkandi, A.A. (2023). Analyzing Sharia Supervision Effects on the Performance of Islamic Banks: Evidence from the GCC Countries. In: Alareeni, B., Hamdan, A. (eds) Explore Business, Technology Opportunities and Challenges ‎After the Covid-19 Pandemic. ICBT 2022. Lecture Notes in Networks and Systems, vol 495. Springer, Cham. https://doi.org/10.1007/978-3-031-08954-1_77

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  • DOI: https://doi.org/10.1007/978-3-031-08954-1_77

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-031-08953-4

  • Online ISBN: 978-3-031-08954-1

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