The empirical analysis of the impact of the economic crisis on Turkish Islamic banks using the CAMEL method

Abstract

Islamic banking is a banking system that is based on the principles of Sharia or Islamic law. The principles of Islamic finance forbid interest commonly known as riba, but supports charity (Zakat), forbid high risk (gharar), forbid certain types of transactions like gambling and based on PLS (Profit-Loss Share). The most important concept is that both charging and receiving of interest is strictly forbidden; money may not generate profits. After the 2008 economic crisis special attention was given to alternative financing techniques, and so to Islamic banks. Islamic banks have largely survived the global economic crisis intact and they offer a safer operation than conventional banks. Turkey's banking system consists of 49 banks, four of them operate according to Islamic principles. In the study the authors analyzed the impact of the economic crisis on the Turkish Islamic banks. In the analysis a variety of indicators were calculated based on data from the annual reports. The annual reports of the banks were used between the period 2007 and 2013 and we evaluated indicators of each banks and the banking system from the points of view of Capital adequacy, Asset quality, Management efficiency, Earnings, and Liquidity. Keywords: Alternative financing, Annual report, Crisis, Islamic banking, Sharia