Evaluating the Performance of Islamic Banks Using a Modified Monti-Klein Model

Novriana Sumarti, Indah G. Andirasdini, Nidya I. Ghaida and Utriweni Mukhaiyar
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Novriana Sumarti: Faculty of Mathematics and Natural Sciences, Institut Teknologi Bandung, Jl Ganesha 10 Bandung, Jawa Barat 40132, Indonesia
Indah G. Andirasdini: Master Program, Deparment of Mathematics, Institut Teknologi Bandung, Jl Ganesha 10 Bandung, Jawa Barat 40132, Indonesia
Nidya I. Ghaida: Undergraduate Program, Deparment of Mathematics, Institut Teknologi Bandung, Jl Ganesha 10 Bandung, Jawa Barat 40132, Indonesia
Utriweni Mukhaiyar: Faculty of Mathematics and Natural Sciences, Institut Teknologi Bandung, Jl Ganesha 10 Bandung, Jawa Barat 40132, Indonesia

JRFM, 2020, vol. 13, issue 3, 1-21

Abstract: The development of Islamic banking continues to increase in many Muslim (majority) countries. Substituting interest with profit shares in the assets of a given Islamic bank as one of the bases of operation has many interesting implications, one of which is the need for more involved risk and return measures. In this paper, we take a balance sheet analysis-based approach to formulating profit in order to assess the performance of an Islamic bank. Then the implementation of this approach is demonstrated using data provided by Indonesia’s financial services authority, known as the OJK. We develop formulae for the calculation of profit share between funding and financing funds as well as the appropriate rates of return. The resulting figures are then used to construct statistical models for short-term forecasting of the volumes of funding fund from the depositors and financing fund for business people who need funds for their investment projects. The approach we develop is innovative for Islamic banks and would be a welcome addition to their performance assessment toolkit. One of the results of our model indicates an increasing pattern on the equivalent rates of returns for funding and financing funds every year, which is caused by the fact that the reported income from the financing fund seems to have been accumulated from the beginning until the end of year in the Islamic bank.

Keywords: balance sheet; Islamic or Sharia banking; time series model; Monti-Klein bank profit analysis (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
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