Do you think the traditional financial ratios in conventional banking analysis, will be useful in Islamic Banking & Finance?
Of course. The traditional ratio analysis will be of great help - excluding those ratios which involves interest factors - as it is trivial that interest part will not appear in Islamic finance.
Further to the traditional ratios, the following ratios will help:
Loan to Deposit ratio (LTD), Loan to Assets Ratio (LTA), Total Equity to Total Assets ratio (EQTA), Deposit to Total Assets (DTA) ratio, Cost to Income ratio (COTIN), Operating expenses to Total Assets (OPEXTA) ratio and Operating Income to Total Assets (OPINTA) ratio.
As example the liquidity ratio its not important in Islamic Banking , because the bank deal with the clients as partners.
All the conventional ratios should hold good for Islamic Banking also.
Yes. You are right Emmanuel. Kindly read my sentence Dr. Farooq - "Further to the traditional ratios...."
Financial ratios of conventional bank is useful and necessary but not sufficient for Islamic bank, which need something like Maqashid Shariah Index...
As long as Islamic bank applies fractional reserve banking system (FRBS), pooling of fund, managing mismatch, traditional financial ratios are needed. However, Islamic bank should differentiate it self from conventional bank by moving away from FRBS to 100% RBS, from pooling of fund to allocation of fund, from managing mismatch to decreasing mismatch.
Is Islamic banks we follow the is Islam Sharia and effect on all the Islamic bank transactions .we don't have interest we are not giving loan what the benefit of the ratios deal with these elements if we are already don't have it
Second actually the Islamic banks are not banks but big Merchants follow Sharia Islam low in their transitions.
We deal with bank clients as partners in different ways of contracts these clients need such new ratios help them as example which contract much better more profitable Mudaraba .musharaka ect.
Thanks to all
FRBS, pooling of fund, and mismatch could be applied in interest system or Islamic bank without interest system.
Sir Ascarya please tell me what is FRBS, pooling of fund and mismatch?
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