The Variables and Variable Definition

From the list of 42 bank statement items compiled by the IBS for Islamic banks and 37 for conventional banks (see Appendix), three criterion variables were selected. These return on assets, return on equity and net income, defined as follows:

ROA Return on Assets (Net Income / Total Assets)
ROE Return on Equity (Net Income / Equity Capital)
Net Income Net profit (not “after-tax” because zakatis operative)

Independent Variables for the Model

Owing to the multi-bank composition of the database, the selection of independent variables was compressed to just one step: running pairwise correlations against each of the above criterion variables. Set aside were lagged and annual change correlations because these are not only extremely unwieldy but also mathematically unsound when multiple entities are concerned.

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Segregated by bank group and criterion variable, the correlation-based shortlist of independent variables are as shown in tables 1 to 3 below and overleaf.