CAPÍTULO 3: ESTUDIO DE CAMPO Y METODOLOGÍA
3.8. ENTREVISTA A LOS ACTORES EN TURISMO DE LA ZONA
Table 5: A Comparison between Islamic Banks and Conventional Banks Sectoral
Distribution of Credit (In percent, 2008)619
Saudi Arabia Kuwait UAE Bahrain Qatar
IB CB IB CB IB CB IB CB IB CB Consumer Loans 35.1 18.9 12.0 12.8 31.0 24.2 22.8 32.0 26.0 25.0 Real Estate and Construction 5.5 8.3 18.9 15.4 26.0 18.4 12.1 19.7 38.3 19.2 Public Sector 15.5 9.8 0.0 9.0 7.1 14.5 1.3 6.8 5.9 27.5 Trade 27.0 23.6 28.5 5.4 7.8 10.0 15.7 21.6 21.4 8.1 Others 16.9 39.4 40.6 57.4 28.1 32.9 48.0 19.9 8.5 20.2 619Ibid
Table 6: The Impact of the Crisis on Profitability, Credit Growth, Assets Growth, and
Ratings for Islamic (IB) and Conventional (CB) Banks (2008–10)620
Saudi Arabia Kuwait UAE Qatar Bahrain
IB CB IB CB IB CB IB CB IB CB
Part 1: Change in Profitability (In percent)
2008-2007 2.0* -31.1 -46.5 -82.3 1.1 5.7 23.5 31.4 -15.0 -17.7 2009-2007 -0.1 -19.2 -78.3 -60.1 -42.2 -7.6 5.6** 38.4 -111.8 -27.7 Avg (2008-2009) -20070.9 0.9* -25.2 -82.4 -71.2 -20.6 -1.0 14.6** 34.9 -63.9 -22.7 Number of banks (Max) 2.0 9.0 2.0 6.0 5.0 14.0 2.0 6.0 5.0 6.0 Number of banks (Min) 2.0 9.0 2.0 6.0 4.0 14.0 2.0 6.0 5.0 6.0
Part 2: Growth in Credit (In percent)
2008-2007 26.9 28.0 18.0 16.3 39.5 38.1 69.0 48.2 37.1 15.7
2009-2008 9.6** -1.8 19.8 1.5 4.3 4.6 13.5** 0.5 2.3 5.9
2009-2007 38.7 27.0 30.9 18.3 44.4 44.9 91.7* 16.1 47.9 22.3 Change (2009-08 and 2008-07) - 17.3* * -30.7 1.8 -14.8 -35.1 -35.5 -55.5 -44.6 -34.9* -9.8 Number of banks (Max) 2.0 9.0 2.0 6.0 5.0 14.0 2.0 6.0 5.0 6.0 Number of banks (Min) 2.0 9.0 2.0 6.0 5.0 14.0 2.0 5.0 5.0 6.0
Part 3: Growth in Assets (In percent)
2008-2007 27.9 20.8 18.0** 3.9 17.7 20.4 48.3 37.8 35.1** 5.4 2009-2008 4.1 3.6 3.6** -3.6 5.6 7.6 20.8* 11.7 5.8 0.5 2009-2007 32.9 24.7 22.2** * 0.5 23.9 30.2 78.4* 54.3 43.6-- 5.6 Change (2009-08 and 2008-07) -23.8 -17.2 -14.4 -7.5 -12.1 -12.8 -27.4 -26.1 -29.2** -4.9 Number of banks 2.0 9.0 2.0 6.0 5.0 14.0 2.0 6.0 5.0 6.0
(Max)
Number of banks (Min)
2.0 9.0 2.0 6.0 4.0 14.0 2.0 5.0 5.0 6.0
Part 4: Change in Rating between pre-Lehman Brothers and April 9, 2010 (change in the probability of default; positive change = downgrading)
Pre-Sept 08-April 9, 2010,
0 0 0 255 606* 61 0 0 0 0
Number of Banks 1.0 8.0 2.0 6.0 4.0 10.0 1.0 4.0 1.0 4.0
3.4.2. Risk Management in the Conventional and Islamic Banking System
Conventional banking operations across the world function through the taking of public deposits and the exploitation of deposit finances in safe investment alternatives through the provisioning of loan to large populations of individual and organisational customers.621Conventional banks help their customers, both individuals and entities by providing them with avenues for safeguarding of their money along with earning interest on their funds.622
Bank managements aim to secure and exploit their deposit funds through the careful examination and evaluation of diverse available avenues for deployment.623Bank managements retain a specific proportion of deposits as safety reserves and invest the balance in the form of loans to diverse customers for their personal or business use.624It needs to be kept in mind that banks, apart from accepting public deposits also borrow funds from other entities in order to create interest bearing loan assets.625Bank managements aim to safeguard their loan through the careful assessment and evaluation of the credit worthiness repayment abilities and organisational
621Sinkey, F. J., Commercial Bank Financial Management, 6th Edition, (NJ: Prentice Hall, 2002).
622 Loayza, N. V., & Ranciere, R., “Financial Development, Financial Fragility and Growth”, Journal of Money, Credit & Banking, 38, 4, (2006): 1051.
623 Kamaruddin, B. H., Safa, M. S., & Mohammed, R., “Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia”, (Munich Personal RePEC, 2008).
624Sinkey, F. J., Commercial Bank Financial Management, 6th Edition, (NJ: Prentice Hall, 2002). 625Ibid
stabilities of their borrowers, augmented by the taking of collateral / security in various forms for liquidation in case of non-satisfaction of debt.626
The organisational managements of banks also try to lower banking risks through the stipulation of specific limits for their external borrowing, which in turn limits the leverage available with them for utilisation.627The use of various types of safeguards notwithstanding, there is little doubt that all types of loans are associated with default risks.628Defaults in payments of loans can occur on account of diverse causes, including (a) changes in borrower intent for loan servicing, (b) the organisational capacity of the borrower for cash flow management, (c) the financial performance and position of the borrower and (d) diverse environmental factors.629
Environmental volatility and economic difficulties can lead to diverse adverse outcomes for the larger market, the profits and cash flows of borrowers and their repayment abilities.630 The occurrence of natural disasters like floods, earthquakes, cyclones and Tsunamis can also impact the operations of borrowing firm and enhance the risks of lenders.631The operations of commercial banks are exposed to various sorts of environmental and market risks.632
The occurrence of the banking and financial debacle and the resulting international economic depression, the impact of which is still evident, have led to a greater understanding and appreciation of the various systemic risks that are prevalent in the operations of the conventional bank.633As explained earlier the banking and financial crisis of 2008 was essentially triggered by defaults amongst US subprime borrowers and its impact on all associated banks, financial institutions and financial frameworks.634 The subprime crisis was driven by wrong and opportunistic corporate governance in US banks, greed for performance bonuses amongst US bankers and an unhealthy desire to generate unsustainably high profits for their organisation.635
626 Beckett, A., Hewer, P., Howcroft, B., “An exposition of consumer behaviour in the financial services industry”, International Journal of Bank Marketing, 18, 1, (2000): 15-26.
627 Kolari, W. J., & Gup, B. E., Commercial Banking: The Management of Risk, 3rd edition, (NY: Wiley, 2004). 628Ibid
629Ibid
630 Alexander, K., Dhumale, R., & Eatwell, J., Global Governance of Financial Systems: The International Regulation of Systemic Risk, (New York: Oxford University Press, 2006).
631Ibid
632 Kolari, W. J., & Gup, B. E., Commercial Banking: The Management of Risk, 3rd edition, (NY: Wiley, 2004).
633 Zaring, D., “International Institutional Performance in Crisis”, Chicago Journal of International Law, 10, 2, (2010): 475. 634 Moussawi, C. E., & Obeid, H., “Evaluating the Productive Efficiency of Islamic Banking in GCC: a Non-parametric Approach”, International Management Review, 7, 1, (2011): 10.
Such motivation for augmentation of banking profitability led to uncontrolled lending to people who very evidently lacked the wherewithal for loan servicing and repayment .636American bankers, convinced that their excessive lending would be safeguarded by inflation across the housing sector, purposely increase their borrowing (for obtaining funds for housing loans) with the help of recently developed financial tools in the form of MBS, SPVs, credit derivatives and securitisation.637 The application of these tools helped American banks to cluster their loans together, segregate them into saleable lots and market them to investors with dissimilar risk profiles.638The use of these techniques helped bank managements to increase their borrowing capacities, lower their balance sheet risk elements, expand their cash flows, augment their mortgage activities and improve their profitability; their application however also resulted in the simultaneous spread of subprime lending risks across the banking system.639
The meltdown in the US subprime mortgage sector between October and December 2006 led to thousands of foreclosures of home mortgages as also in the bankruptcy and collapse of numerous providers of subprime loans.640It is important to note that these subprime loans had been clustered into MBS and sold to diverse types of investors.641 The defaults in subprime loans resulted in swift and considerable erosion in the market values of these MBS and to substantial losses for their holders. 642
The consequent concern and panic in the market resulted in swift and sharp reduction of lending activities, the practically complete blockage of credit and the onset of the economic downturn.643 The generation of the financial crisis and the economic downturn along with consequent research and enquiry resulted in growing awareness and appreciation of the extensive systemic risks that have entered and entrenched themselves in the conventional banking
636 Shiller, R., The subprime solution: how today's global financial crisis happened, and what to do about it, (Princeton: Princeton University Press, 2008).
637 Kroszner, R., Luc, L., & Klingebiel, D., “Banking Crises, Financial Dependence, and Growth,” Journal of Financial Economics, 84, (2007): 187–228.
638 Shiller, R., The subprime solution: how today's global financial crisis happened, and what to do about it, (Princeton: Princeton University Press, 2008).
639 Khan, M. M., & Bhatti, M. I., “Development in Islamic banking: a financial risk-allocation approach”, The Journal of Risk Finance, 9, 1, (2008): 40-51.
640 Hoq, M. Z., Sultana, N., & Amin, M., “The Effect of Trust, Customer Satisfaction and Image on Customers' Loyalty in Islamic Banking Sector”, South Asian Journal of Management, 17, 1, (2010): 70.
641 Gupta, A., “Financial crisis enforcing global banking reforms”, Business Strategy Series, 11, 5, (2010): 286-294. 642Askari, H., Iqbal, Z., Mirakhor, A., & Krichene, N., The Stability of Islamic Finance: Creating a Resilient Financial Environment for a Secure Future, (John Wiley & Sons (Asia) P. Ltd. Singapore, 2010).
643Ariss, R., “Competitive Conditions in Islamic and Conventional Banking: A Global Perspective”, Review of Financial Economics, (2010): 101-108.
framework.644Conventional banks as described earlier intermediate between depositors and borrowers of banks.645 The deposits accepted by banks are merged together and distributed through various types of loans to large borrower population, thereby interconnecting millions of depositors and borrowers with the assistance of intricate and sophisticated operating.646Banking systems are fundamentally based upon the confidence of millions of people for banks; the erosion and degeneration of such confidence can lead to significant risks and hazards for these establishments.647
Research in the aftermath of the banking and financial debacle informed that the generation of counterparty risk, i.e. the probability of banks not being able to satisfy their contractual liabilities constituted the most important of financial risks.648 The development of such risks is considered to be an outcome of asymmetric information, namely the possession of greater knowledge by financial entities about their finances than the individuals and entities who deal with them.649 Such asymmetry of information increases exponentially with the complexity of financial contracts and becomes extremely severe for investment firms and institutions.650It also expands rapidly with greater intricacy of financial contracts and results in considerable lack of transparency for investment firms. 651
Some investment firms function with banks and themselves through different paths like over the counter instruments, interbank markets and prevalent systems for payments and settlements; information asymmetry in this network can clearly result in the development of large and unknown risks.652Settlement risks are known to emerge when one of the parties to a financial contract does not have the ability to satisfy his liabilities even after the other party has delivered.653The likelihood of such defaults has grown and become a matter of considerable
644 Poole, W., “Causes and Consequences of the Financial Crisis of 2007-2009”, Harvard Journal of Law & Public Policy, 33, 2, (2010): 421.
645Ibid
646Askari, H., Iqbal, Z., Mirakhor, A., & Krichene, N., The Stability of Islamic Finance: Creating a Resilient Financial Environment for a Secure Future, (John Wiley & Sons (Asia) P. Ltd. Singapore, 2010).
647 Bader, M. K. I., Mohammed, S., Ario, M., & Hassan, T., “Cost, revenue and efficiency of Islamic versus conventional banks: inter- national evidence using DEA”, Islamic Economic Studies, 15, 2, (2008): 23-76.
648 Zaring, D., 2010, “International Institutional Performance in Crisis”, Chicago Journal of International Law, Vol.10, Iss (2): pp. 475.
649Ibid
650 Bader, M. K. I., Mohammed, S., Ario, M., & Hassan, T., “Cost, revenue and efficiency of Islamic versus conventional banks: inter- national evidence using DEA”, Islamic Economic Studies, 15, 2, (2008): 23-76.
651Ibid
652 Luc, L., & Fabian, V., “Systemic Banking Crises: A New Database,” (IMF Working Paper No. 08/224, 2008). 653Ibid
worry for larger banks who engage in millions of such deals on a regular basis.654The concurrent occurrence of numerous transactions and the complex banking system makes it extremely difficult to oversee the actions of counterparties and counterparties of counterparties.655The risks that have entered into the conventional banking system have truly become immense and challenging.656
Islamic banking has a number of unique characteristics that differentiate it from normal banking.657One of the most important of these differences stems from the prohibition on charging and receiving of interest.658 Such a ban on interest will obviously make it challenging for Islamic banks to work with customers who require little else than borrowing with security for purposes of trade and commerce.659 Researcher aver that such significant limitations on conventional money lending operations will primarily lead to the growth and expansion of the operations of these banks and financial institution through the development of diverse types of participative agreements between the providers and users of funds.660 Such participative working will lead to the expansion of equity, instead of the borrowing of the firms that aim to use funds.661
There is little doubt that enhancement in equity at the cost of debt leads to greater business stability and safety from financial risks and vulnerability.662Modern financial experts argue that the utilisation of lower debt levels is bound to lead to lower profitability because of underutilisation of the tax shield that is available for interest payments; most businesses nevertheless operate with lower levels of debt if they can do so.663Lower levels of debt and consequently lower repayment commitments help organisational managements to operate with lesser worries, engage in carefully calculated risks and implement their strategies without the
654 Gupta, A., “Financial crisis enforcing global banking reforms”, Business Strategy Series, 11, 5, (2010): 286-294.
655 Ritholtz, B., Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy, (NY: Wiley, 2009).
656Ibid
657Siddiqi, M.N., “Current Financial Crisis and Islamic Economics”, Radiance Views weekly, 38, (2009),
<http://www.radianceweekly.com/137/3039/GLOBALMELTDOWN-Its-Viable Alternative/2008-12-14/Cover-Story/Story- Detail/Current-FinancialCrisis-and-Islamic-Economics.html>
658 Askari, H., Iqbal, Z., & Krichenne, N., The stability of Islamic finance, Oxford: Oxford University Press (2011).
659 Bader, M. K. I., Mohammed, S., Ario, M., & Hassan, T., “Cost, revenue and efficiency of Islamic versus conventional banks: inter- national evidence using DEA”, Islamic Economic Studies, 15, 2, (2008): 23-76.
660 Kroszner, R., Luc, L., & Klingebiel, D., “Banking Crises, Financial Dependence, and Growth,” Journal of Financial Economics, 84, (2007): 187–228.
661Ibid
662 Kamaruddin, B. H., Safa, M. S., & Mohammed, R., “Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia”, (Munich Personal RePEC, 2008).
worry of answering and explaining to lenders.664Research has also revealed that lower levels of debt frequently leads to higher levels of profitability and better servicing of shareholders through higher dividends and greater market values of shares.665
Islamic finance experts make the point that substitution of debt with different types of funding participation leads to substantially higher operational productivity and assists the users of finances to repay fund providers.666 One significant outcome of the prohibition of interest and the consequent development of participative agreements between banks and fund users have been the generation of close and intimate relationships between banks and clients.667The managements of Islamic banks are aware that the safety and security of finances are fundamentally dependent upon the organisational profitability of their clients; such awareness forces the managers of Islamic banks to carefully study and evaluate the applications of their clients and their requirement for funds, along with their project details, with high levels of perspicacity and concentration; they try their best to evaluate the prospective client’s business potential, viability and profitability.668It is important to appreciate that participatory agreements are of different types and the fund provider has the option for participating in or staying away from the business.669It is however nevertheless true that the bond between fund providers and fund users is much stronger in Islamic banking than it in conventional banking.670
Banking relationships between banks and clients in the area of conventional banking is essentially maintained at arm’s length and borrowers do not welcome or appreciate high levels of bank oversight and interference in their functioning.671 The association between banks and customers are essentially clinical and decided by contractual terms.672Such maintenance of arm’s length ensures that borrowers can operate independently but at the same time enhances the chances of information asymmetry and the development of distant relationships between lenders
664 Hoq, M. Z., Sultana, N., & Amin, M., “The Effect of Trust, Customer Satisfaction and Image on Customers' Loyalty in Islamic Banking Sector”, South Asian Journal of Management, 17, 1, (2010): 70.
665Ibid
666 Khan, M. M., & Bhatti, M. I., “Development in Islamic banking: a financial risk-allocation approach”, The Journal of Risk Finance, 9, 1, (2008): 40-51.
667Askari, H., Iqbal, Z., Mirakhor, A., & Krichene, N., The Stability of Islamic Finance: Creating a Resilient Financial Environment for a Secure Future, (John Wiley & Sons (Asia) P. Ltd. Singapore, 2010).
668Ibid
669 Loayza, N. V., & Ranciere, R., “Financial Development, Financial Fragility and Growth”, Journal of Money, Credit & Banking, 38, 4, (2006): 1051.
670Ibid
671Siddiqi, M.N., “Current Financial Crisis and Islamic Economics”, Radiance Views weekly, 38, (2009),
<http://www.radianceweekly.com/137/3039/GLOBALMELTDOWN-Its-Viable Alternative/2008-12-14/Cover-Story/Story- Detail/Current-FinancialCrisis-and-Islamic-Economics.html>
and borrowers.673This results in conventional banks frequently being deprived of various types of information that could improve their knowledge and information of the operations and profitability of their clients.674Conventional banks thus have to basically rely upon the annual reports of their customers in order to evaluate their performance and the security of their loans.675
Islamic banking prohibits debt that carries interest but at the same time appreciates that businesses are likely to need external funds.676Islam contains numerous references to the advantages of businesses that are operated with honesty and provides extensive encouragement to businessmen to work hard and achieve honest profits.677
It can be surmised from the preceding discussion that the risk management methods, systems and approaches adopted by conventional banks differ extensively from Islamic banks. Conventional banks engage in detailed scrutiny of the borrower’s circumstances, determine whether the borrower will be able to repay the amount taken as loan, maintain an arms-length distance with the borrowing firm and ask for periodic information as well as repayment of principal and interest.678 They also insist upon the provisioning of valuable collateral, which can be enhanced in times of default.679 The risk management system is simple and linear and can be applied across large borrower populations; it however suffers extensively from information asymmetry because the bank is unlikely to have comprehensive knowledge about the operations of the borrower and has to depend upon reports from the borrowing organisation to find out about the operations of the company and its continued ability to satisfy debt obligations.680 Borrowers often do not provide adequate information to the lending bank and bankers find out about things having gone wrong only after defaults start taking place.681 The collateral in many
673 Hair, J.F., Sarstedt, M., Hopkins, L., & Kuppelwieser, V.G., “Partial least squares structural equation modeling (PLS-SEM): An emerging tool in business research”, European Business Review, 26, 2, (2014): 106- 121.
674 Beltratti, A., & Stulz, R.M., “The credit crisis around the globe: Why did some banks perform better?”, Journal of Financial Economics, 105, 1, (2012): 1-17.
675 Siddiqi, M. A., “Banking on Sharia Principles: Islamic Banking Has Witnessed Remarkable Growth from Its Humble Beginnings in the Early 1970s into a 21st Century Multi-Billion Dollar Global Niche Industry”, The Middle East, 24, (2002): 1-5. 676 Al-Omar, F., & Abdel-Haq, M., Islamic Banking: Theory, Practice & Challenges, (Oxford University Press: London & New Jersey, 1996).
677 Allen, L., Bali, T.G, & Tang, Y., “Does systemic risk in the financial sector predict future economic downturns?”, The Review of Financial Studies, 25, 10, (2012): pp. 3000-36.
678 Hasan, M., & Dridi, J., “The Effects of the Global Crisis on Islamic and Conventional Banks: A Comparative Study”, International Monetary Fund, IMF Working Paper, (2010), <www.imf.org/external/pubs/ft/wp/2010/wp10201.pdf> 679Ibid
680Ibid
681 Kamaruddin, B. H., Safa, M. S., & Mohammed, R., “Assessing production efficiency of Islamic banks and conventional bank