Application of CAMEL model on the GCC Islamic Banks: 2008-2014

Abstract

Purpose-The purpose of this paper is to evaluate the soundness of Islamic banks in the GCC for the period 2008 to 2014.Methodology-The study involves 11 listed Islamic banks based in the GCC countries of Saudi Arabia, United Arab Emirates, Qatar, Bahrain, and Kuwait.The study applied the CAMEL parameters, which include capital adequacy, asset quality, management capability, earning ability, and liquidity ratio.Multivariate Z-score model is also used to ensure robustness of the results.Findings-The findings suggest that although the Islamic banks in the GCC have adequate capital, their asset quality and earning ability have deteriorated over the period of study.However, the impact was not so significant that these banks will be pushed to the brink of bankruptcy.Practical implications-The information is of interest to stakeholders, who is concerned about the soundness of the banking sector in general, as any negative impact on the financial sector may have enormous implications for the country, which was indeed evident in the recent financial crisis.Insight into these elements provides a focus for management of the bank, by identifying areas that need attention.

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