Nowadays, a problem arises among customers or savers to choose a bank that has the best financial performance to ensure their profitability and satisfaction. They has hard time to choose either Islamic banks or Conventional banks.
The modes of
operations between Islamic banks and conventional banks are different. The
conventional banking operates on pre-fixed interest whilst Islamic banks based
on profit sharing. The modes of operations are different. Islamic banking
refers to a system of banking or banking activity that is consistent with
Islamic law (Shari’ah) principles. It is interesting to look at the
current performance of Islamic banks and compared it to the conventional. Are
they still far away from the long established conventional bank?
In terms of
profitability and liquidity, we can say that Islamic banks are less profitable
but have better liquidity than Conventional Banks. The greater profitability of
Conventional banks are caused by the higher net financing and quality of the
assets. In the other hand, the higher liquidity of Islamic banks due to the
lack of Islamic financial instruments especially for long-term investment in
the market to manage their surplus liquid funds.
For the measure of risk and solvency perspective, we can conclude that Islamic
banks faced lower credit risk since their has low Financing to Deposit Ratio
(FDR) than Conventional banks, but Conventional banks shows better shield as
their Equity over Liabilities E/L is higher than Islamic banks.
Lastly, in terms of
efficiency, Islamic banks are better than Conventional banks due to the higher
of Net Financing Income Margin (NFIM) and Net Financing Revenue over Asset
(NFRA). The higher profit margin become advantages to the liability counter
parties as the gained high profit return. In contrast, the borrower need to
overcome high profit markup from Islamic banks as compensate with risk and
default in settlement since Islamic banks are responsible to all issues on the
financing contract.
No comments:
Post a Comment