Activity diversification and performance of Islamic banks in Malaysia

Mohamed Ali Chatti, Akassi Kablan and Ouidad Yousfi ()

MPRA Paper from University Library of Munich, Germany

Abstract: The current paper analyzes the performance and the choice of portfolio in Islamic banks. We consider a sample of 8 Malaysian universal Islamic banks between 2004 and 2008. We use the Herfindahl-Hirschman Index (HHI) as an indicator of the degree of diversification. The performance of the banks is measured by the return on assets ratio (ROA) and the Risk Adjusted Return On Capital ratio (RAROC). Finally, we use the Modern Portfolio Theory (MPT) of Markowitz to define the efficient frontier and the optimal portfolio.The results show that the corporate and investment activity increases significantly returns on assets. However, retail and commercial activity improves the results and performance of these banks. We find evidence that the level of diversification is not too high and recommend that they become concentrated on just one type of these activities. Finally, the MPT supports the idea that Islamic banks are not efficient.

Keywords: Diversification; performance; Islamic banks; Herfindhal Hirschmann Index; Modern Portfolio Theory. (search for similar items in EconPapers)
JEL-codes: C01 G11 G21 (search for similar items in EconPapers)
Date: 2010-01-23
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-eff and nep-sea
References: View references in EconPapers View complete reference list from CitEc
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https://mpra.ub.uni-muenchen.de/28348/1/MPRA_paper_28348.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/29269/1/MPRA_paper_29269.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/29421/1/MPRA_paper_29421.pdf revised version (application/pdf)

Related works:
Working Paper: Activity diversification and performance of Islamic banks in Malaysia (2017)
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