Roza Hazli Zakaria

Comparison on Stability Between Islamic and Conventional Banks in Malaysia.

Islamic banks were relatively unaffected during the recent financial meltdown. This has raised the possibility that financial institutions, operating on Islamic principles are more stable compared to their conventional counterparts. This motivates us to undertake to examine relative stability between Islamic and conventional banks. Z-score and NPL are used as proxies for bank stability. Computation of Z-score and NPL suggest that on average Islamic banks are relatively more stable than their conventional counterparts. Standard panel data analysis suggests that factors affecting both Islamic and conventional banks stability are similar, except for the degree of diversification in income. Stability is not a function of income diversification for Islamic banks but it is in the case of conventional banks. This explained why during recent crisis, when various sources of bank income was adversely affected, Islamic banks remained stable as opposed to the conventional banks.

Why this bank? Understanding customers'preference for an Islamic bank in a competitive market.

This study aims to understand customer preferences in selecting a bank in a competitive market of Islamic banks. Primary data collected from the customers of an outstanding Islamic bank (Bank Rakyat) was analysed using exploratory factor analysis. It is found that customers are attracted to Bank Rakyat because of its quality of service, its returns and its physical image. Analysis of Variance (ANOVA) reveals that Muslim and non-Muslim customers are equally influenced by these factors. The results suggest that when there are many Sharia compliant banks in the market customers are assured of the religious factor and hence look for other criteria in the bank of their choice. The relevant marketing strategies from this study are improvement of customer service satisfaction, attractive cost benefit and provision of good bank ambience.

Investigation of the expected loss of sharia credit instruments in global Islamic banks

Purpose - – The purpose of this paper is to investigate the expected outcomes, both of positive and negative returns occurred by sharia credit instruments in global Islamic banks. The annual panel data from 2005 to 2012 is collected from 40 Islamic banks from 12 countries and value at risk (VaR) technique is employed in the investigation process. The findings of this study indicate several outcomes: first, majority of Islamic banks use debt-based financing (DBF) and avoid asset-based financing (ABF) due to the lack of secured rate of fixed returns and collateral. Second, the ABF financing shows the positive returns. Third, interestingly, DBF financing faces higher credit risk compared to ABF even DBF secures its financing through tight policy implementation. Finally, this paper comes up with policy recommendations for the further reduction of credit risks and improvement of bankers’ confidence level in implementing the ABF financing policy. Design/methodology/approach - – VaR on panel data. Findings - – Sharia credit instruments play an important role. Research limitations/implications - – Data findings. Originality/value - – Fully original.

Transforming Arithmetic Asian Option PDE to the Parabolic Equation with Constant Coefficients

Arithmetic Asian options are difficult to price and hedge, since at present, there is no closed-form analytical solution to price them. Transforming the PDE of the arithmetic the Asian option to a heat equation with constant coefficients is found to be difficult or impossible. Also, the numerical solution of the arithmetic Asian option PDE is not very accurate since the Asian option has low volatility level. In this paper, we analyze the value of the arithmetic Asian option with a new approach using means of partial differential equations (PDEs), and we transform the PDE to a parabolic equation with constant coefficients. It has been shown previously that the PDE of the arithmetic Asian option cannot be transformed to a heat equation with constant coefficients. We, however, approach the problem and obtain the analytical solution of the arithmetic Asian option PDE.