This website uses cookies to ensure you have the best experience. Learn more

Impact Of Global Financial Crisis On Banking Sector

1904 words - 8 pages

1.0 Introduction

“Bank” is a very common word for society nowadays since it’s always applied in our daily life. As we know that, banks are involved in the activity of finance transaction and business investment. In the Malaysian banking system, it can be divided into two main system which is Islamic banking system and conventional banking system. Both of the banking system operate in different ways and give a different perspective to the different customers. In this paper, I am going to investigate about the level of efficiency of the Islamic and conventional commercial banks before and after the Global Financial Crisis.
Islamic banking system has holds the six principles for their operation system which is (1) money as capital, (2) Rabbulmal and Mudarib relationships, (3) risk sharing (4) markets set prices and generate profits, (5) Islamic banking stability and (6) Islamic banks as agents for economic growth (Ismail, 2010). For Islamic banking system, payment of interest is prohibited. The money that invested in the business is considered as the potential capital and it can be used to purchase the goods and services. Besides, money which advanced to a business is a debt of the business and it is not allowed to apply to any interest.

For the conventional banking, their core principle is time has value which means that the amount of the financial transaction will affect by the time of payment (Ismail, 2010). The borrower is allowed to make their payment by a series of time through the conventional loan contract that fixed. For example, if you buy a car and borrow a loan, the bank will allow you to make the payment according to the period that agreed. At the end of the period, you will find that the amount of payment will exceed the amount of loan that borrowed. The amount that exceed is used to compensate the period of loss of the lender.

In term of business operations, Islamic bank is different from conventional banking. Islamic banks operate according to the principles, Shariah or known as Fiqh al-Muamalat. The main principle that holds by Islamic banking is that Islamic banking is sharing of profit and loss and interest (riba) is prohibited (Ismail, 2010). There are few types of Islamic contracts that being introduced in Islamic banking, that is Mudarabah (profit sharing), Wadiah (safekeeping), Musharakah (partnership), Murabahah (cost plus) and Ijarah (leasing). For example, in the case of Islamic mortgage transaction, the bank will buy the house from the seller and resell it to the buyer. This process does not incur any profit since there is no penalty for the late payment. However, bank will ask for the strict collateral to protect them from any unexpected incident. This type of contract is known as Murabahah. For Musharakah, it is a general partnership whereby they go into the contract to share the profit and loss together by joining their capital and labor. Mudarabah is a contract whereby the capital is entrusted to the entrepreneur...

Find Another Essay On impact of global financial crisis on banking sector

The Impact Of Global Financial Crisis On The United Kingdom

2669 words - 11 pages world than the old world each individual is more likely to concentrate upon his war effort if he feels that his government will be ready with plans for that better world.’ in his December 1942 report (Alderman, 1986, p. 230). On 9 February 1948, Bevan urged ministers and doctors to ‘take pride in the fact that, despite our financial and economic anxieties, we are still able to do the most civilised thing in the world: put the welfare of the sick


1088 words - 4 pages not adjusted upwards to match the inflation rate. Research Objectives and Research Questions The global financial crisis of 2007 to 2009 had a big impact on the gulf economies. Indeed, the prices of oil, which is a major economic wellness indicator, declines from $147 to an all low $32 in a span of just few months. The number of credit default increased even as interest rate continued to increase, showing a financial system that was


940 words - 4 pages Background The global financial crisis that was experienced in 2007/2008 affected many nations of the world. Some countries such as America and most European countries were hard hit since they were directly affected by the crisis. Other countries especially those in Asia and Africa were not adversely affected as they were not directly hit by the crisis. This crisis started in the United States after the housing bubble busted. Although the


762 words - 4 pages Research Design (Methods and Methodology) This topic is to a large extent exploratory and as such descriptive survey design will be used to investigate the impact of global financial crisis on Gulf area and to GCC in particular. It is worth noting that descriptive survey designs is most preferred in exploratory and preliminary studies since it gives provision to gather the relevant information, summarize, analyze, and interpret the data to

Impact of the Current Global Financial Crisis on Human Resource Management

2484 words - 10 pages management, 54(6), 361-368 Costa, J. (2004). The Portuguese Tourism sector: key challenges for human resources management, International Journal of Contemporary Hospitality Management, 16(7), 402-407 Dolan, S, Belout, A & Balkin, D. (2000). Downsizing without downgrading: learning how firms manage their survivors, International journal of Manpower, 21(1), 34-47 Fodor, P & Poor, J. (2009). The Impact of the Economic and Financial Crisis on HRM and

The Impact of the Global Financial Crisis on the Australian Economy

2936 words - 12 pages recession, while most expected the financial crisis would have a major impact on the Australian economy, a factor that was not considered was the immediacy of its effects. The December quarter of 2008, saw business stocks devalue by $3.4 billion, the largest fall on record. In addition, there was a considerable softening in property prices, resulting in many companies/people having too much debt vs. too little wealth. With this, consumer

The Global Financial Crisis and Its Impact

2217 words - 9 pages looking more optimistic in the short term as their economies were not as integrated into the global financial market system. Nevertheless, the escalated impact of the crisis did affect the real economy of developing countries especially on the export-orientated nations. As the demand of goods and services has been weakening from the developed countries, the output of manufacturing or services companies decreased, which directly related to the

Indian Financial Sector: Focus on Indian Banking Environment

1216 words - 5 pages in the nation along with supremacy of public sector banking. Although, Indian Banks went off the financial crisis with least difficulty but now the situation is alarming. At present, of the total loans disbursed, 3.5% of them accounts as Non-Performing Loans. (India’s public-sector banks are sitting on something unpleasant) Second, and more alarming situation is related to restructured assets which are still rising faster. The total amount of

Necessary Banking Changes to Prevent Another Global Financial Crisis

2120 words - 9 pages Question 1 Financial crisis that affected globally became the greatest shock to the world financial system and financial markets of USA and Europe was mainly affected. Underlying weaknesses in financial regulations were considered as one of causes of Global Financial Crisis. As regulations are blamed in current (2007-2008) crisis it should be taken under consideration that cause lies in Basel I and Basel II. However Basel II was not fully

Impact of Banking Sector on Agricultural Development of India with particular reference to Maharashtra – Theoretical perspective

2190 words - 9 pages Impact of Banking Sector on Agricultural Development of India with particular reference to Maharashtra - Theoretical perspective.Vivek V. Patil*1) Introduction :-Agriculture probably is the oldest profession for livelihood for major portion of the population in our country. Nature and type of farming , however, underwent conspicuous changes during the course of socio-economic transformation which has now attended technologically advanced

The Impact of Human Resource Management Practices on Employees Turnover in Banking Sector of Pakistan

2845 words - 11 pages has gained attention of researchers in the recent years. This study broadly focuses on the impact of human resource (HR) practices on employees’ turnover. In addition to this, the study also focuses on various HR practices in the banking industry with respect to employees working for banks. Commercial banks play a vital role in the economic activity of a country, as the state bank of Pakistan implements monetary policy with the help of commercial

Similar Essays

Impact Of Global Financial Crisis On Banking Sector

2820 words - 11 pages , 2011). On the other hand, the asset quality is important to determine the level of lending business of the banks (Australian Bankers’ Association Inc, 2011) and the liability management can be used to determine the credit risk of a bank and its’ solvency level (Masruki, Ibrahim, Osman and Wahab, 2011). Since the objective is used to compare the efficiency level of Islamic bank and conventional bank before and after the Global Financial Crisis

The Influence Of The Financial Crisis On The German Banking Sector

612 words - 3 pages 1. The specifics of German banking sector and the prerequisites of the failure The structure of the German banking sector differs greatly from the other counties banking systems. The specifics of the former is on the one hand, the reason why German economy performed well during the crises, and on the other hand, the ground for the failure of land banks. 1.1. German banking sector The predominant feature of the German banking system is its

The Impact Of The Global Financial Crisis On Chinese Economy

3304 words - 14 pages The impact of the global financial crisis on Chinese economy In the past two decades, China has enjoyed the one of the world’s fastest growing speeds. And for right now, China has been the most major contributor to the world economic growth. But in the recent years, the global financial crisis already did a huge damage to the Chinese growing economy. Especially in the aspect of exporting sector, China has been hit hardly by this crisis. The

The Impact Of Global Financial Crisis On The United Kingdom

7067 words - 28 pages The impact of the National Health Service on the United KingdomIntroductionThis report will look at the National Health Service, which is a significant part of the current welfare state in the United Kingdom. It is for people who would like to know more about health system of contemporary Britain. In this paper, it will begin by looking at the healthcare background and reforms, and will show how the NHS has affected British citizens. Finally