Describe about the Banks In case of Crisis in Qatar.
The emphasis of this study is the evaluation and the comparison of the performance of conventional and Islamic banks in case of a financial crisis in Qatar. It will compare and contrast the Qatar Islamic Bank (QSB) and Qatar National Bank (QNB) sectors on the basis of liquidity, capital adequacy, leverage as well as profitability. The analysis of various performances of these two banks will enable an assessment of the capability of the two banking sectors to withstand the depressions as well as shocks (Fayed 2013). The Islamic banking discourse entails equity instead of debt, risk diversification by sharing risk, transparency and sharing of information between manager and investor as well as financing in strict link to asset instead of leverage (Loghod 2010). On the other hand, conventional discourse have higher likelihood of collapsing due to asset overleveraging, copious debt, extreme securitization as well as new asset creation that are neither transparent nor comprehended.
Aims and Objectives
- To discuss the ability of Islamic banks to face the financial crisis in general
- To perform a comparative analysis between the Islamic and conventional banks to face any coming crisis
- To showcase that Islamic banks in Qatar are more advantageous to face any coming financial crisis than conventional banks
- To determine which banking sector (conventional or Islamic) will perform best in the face of a financial crisis in Qatar
- To show the reasons for the best performance of a particular banking sector using the Qatar Islamic Bank (QSB) and Qatar National Bank (QNB).
- To evaluate and the compare the performance of conventional and Islamic banks in case of a financial crisis in the Qatar using profitability and liquidity ratios of Qatar Islamic Bank (QSB) and Qatar National Bank (QNB).
- To showcase why Islamic banks will perform better compared to conventional banks in terms of mitigation of risks and insolvency
- To give the rationale for probability of the Islamic banks to have less problems with liquidity and insolvency declarations over conventional banks in Qatar
- To explain the role of prohibiting Islamic banks from engaging into banking practices that are linked directly to debt instruments.
This study will implement a case study as well as cross sectional analysis on the conventional and Islamic banks in case of any coming the financial crisis in the Qatar. The purpose of this examination is to determine which banking system has sufficient performance and ability to remain sturdier in case of the financial crisis based on the leverage, liquidity, profit as well as capital adequacy (Tlemsani and Al Suwaidi 2016). This case study examination will be executed on two selected banks, Qatar Islamic Bank (QSB) and Qatar National Bank (QNB).
Various reasons aided the selection of these two banks. This study will delve in local banks for measuring which of the two banks sectors, conventional or Islamic performed sufficiently. Another reason for this choice is that these two banks are suitable for scrutiny on the basis of asset size (Tai 2014). They two banks also possess a large market share. They also have a broad coverage in the Qatar. The two banks are also well established in Qatar banking industry and have a long existence since their creation which puts them at relatively same level in terms of business cycle (Usman and Khan 2012).
The cross sectional analysis will be carried out for duration the study process. The purpose of such a scrutiny is the observation of the performance of the entire population of both Islamic and conventional banking systems. Conducting a cross sectional scrutiny between the conventional and Islamic banks warrants a macro display of the performance of these two banking sectors in the Qatar banking sector. This cross sectional examination is, therefore, a pioneering study topic because most of the former studies have only emphasized the summative performance of the Islamic banks in Qatar.
The analysis of the financial ratio will be performed as an assessment of the performance of the Qatar Islamic Bank (QSB) and Qatar National Bank (QNB). Both income statement and balance sheet for each bank will be acquired as a resource for analyzing these ratios. The ratios will be observed return on equity and asset, profit margin, debt to equity, asset utilization, liquidity as well as equity to net loan ratio.
These similar ratios will also be observed for the cross sectional examination for determining the particular financial system that performs better in case of a crisis based on capital adequacy, liquidity as well as profitability. Various ratios will be supplemented in the cross sectional examination such as liquid asset to total asset, tier one, loan to total asset, nonperforming loan ratio as well as loan to total deposit ratio.
Various financial ratios will be utilized to measure the performance of conventional and Islamic banks in case of the financial crisis. The capital adequacy ratio, return on asset ratio, nonperforming loan ratio, profitability ratio, current ratio, liquidity ratio, and return on equity ratio will aid the measurement of the performance. Other ratios that will be used include asset utilization ratio, insolvency ratio, leverage and many other ratios. These ratios will be used as indicators of financial performance for the two banks (Toumi, Viviani and Belkacem 2011). These ratios will hence be computed and compared between the two banks to aid interpretations.
The liquidity and profitability ratios will be used in this study as a framework for analyzing. Regarding the liquidity ratio, loan deposit, portfolio and cash investment to deposits as well as loan to total assets will aid the measurement of liquidity of the banks to showcase how the banks would meet their short term financial obligations (Rashid, Khaleequzzaman and Jabeen 2015). On the hand, profitability, return on assets, earning per share as well as return on equity will be used to assess the profitability to denote the efficiency with which the concern is in utilizing its assets.
The global banking system has been adversely impacted by the financial crisis. Nevertheless, Islamic banking sector in Qatar has remained resilient and has continued to display better performance. Especially in the Qatar, the Islamic banks performance has displayed competitive improvement compared to the conventional banks. It is expected that this study will affirm that on a macro level examination, conventional and Islamic banking sectors have been impacted adversely by the crisis based on the diminishing ROE and ROA (Arouri, Hossain and Muttakin 2011).
It is expected that the study will affirm the previous discoveries that there is no significant different based on ROA between conventional and Islamic banking. It is also expected that this study will help affirm that Islamic banking sector upholds a higher proportion relative to conventional banking sector regarding the total asset and market share through cross sectional analysis.
It is also expected that the study will uncover that Islamic banking sector preserve a higher proportion of liquidity compared to conventional banking sector in Qatar which is effective in case of the financial crisis (Al-Gazzar 2014). The maintenance of the lower proportion of nonperforming loans by the Islamic banking sector translates to a good quality as well as credit screening.
The study expects to conclude that in overall, the impact of financial crisis remained limited on Islamic banking sector and that they are mostly affected in terms of ROE and ROA. The Islamic banking sector is also expected to outperform the conventional banks with respect to the mitigation of insolvency and liquidity risks since the Islamic banks have managed to showcase a high proportion of liquid asset (Al-Deehani, El-Sadi and Al-Deehani 2014).
This revelation is expected to give the rationale for probability of the Islamic banks to have less problems with liquidity and insolvency declarations as they are prohibited from engaging into banking practices that are linked directly with debt instruments.
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