The Future for Financial Stability of Islamic Banks in GCC - Essay Example

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The hypothetic-deductive logical approach makes use of hypothesis testing as well as an inferential statistic to make credible statistical conclusions. The paper "The Future for Financial Stability of Islamic Banks in the GCC" will make use of regression analysis to achieve its primary goals. …

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The Future for Financial Stability of Islamic Banks in GCC

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Subject: Finance & Accounting
Type: Essay
Level: Undergraduate
Pages: 1 (250 words)
Downloads: 2
Author: jleffler

Extract of sample "The Future for Financial Stability of Islamic Banks in GCC"

Due to their ease of calculation from financial results, financial ratios will be used in the regression analysis.

In the regression analysis of profitability, there will be three dependent variables; return on equity, net profit as well as return on assets. Each of the three variables will be regressed against independent variables, one at a time. It is important to note that return on assets does not only provide information regarding how incomes are generated by every single asset, but it also depicts the ability of financial institutions to acquire deposits and invest them for considerable profits. On the other hand, return on equity denotes a measure of returns by shareholders to the firm.

The equation that will be used to do the regression analysis is as below:

Profitability= B0+B1*Leverage+ B2*Size-+ B3*Investment+ B4*GDP + B5*IB dummy + c

In this case;

Leverage= Assets/Total capital

Investment= Investment Portfolio/ Total Assets

Size= Book value of total assets

GDP= Change in GDP growth rate

IB dummy= 1 if an Islamic bank and 0 if the conventional bank

B0…B6 = Coefficients of independent variables

Efficiency Ratio= Operating expenses / Operating income

In addition, factors that can possibly explain the relative differences across conventional banks and Islamic banks in their credit growth will also be examined through regression analysis.

Credit growth= B0+ B1* Leverage + B2*Size + B3*Investment+ B4*GDP + B%*IB dummy+ c

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