Short-Term and Long-Term Effects of Sharia Supervision on Banks' Performance

Document Type : Iranian National Islamic Banking Conference - Melli Bank Study Center

Author
Azam Ahmadyan
Assistant Professor, Department of Banking Studies, Monetary and Banking Research Institute, Central Bank, Tehran, Iran
10.30497/ifr.2023.244172.1776
Abstract
Today, in Islamic societies, the importance of a sharia-based evaluation of banking is recognized more than ever. As a result, many Islamic countries have formed sharia supervision committees and compiled the necessary regulations to determine the duties, responsibilities, and functions of these committees. In Iran, also, in 2022, it was decided to set independent sharia supervisors in banks. What is important is the quantification of the short-term and long-term effects of this presence on the performance of the country's banks. In this article a dummy variable has been defined for sharia supervision, and the criteria of equipping and allocating resources, asset quality, and health rating are used to measure banks' performances. The ARDL model has been used to estimate short-term and long-term relationships. The article's most important findings indicate a negative and significant relationship between sharia supervision and resource allocation and banks' health rating in the short term, and a positive and significant long-term one. Also, sharia supervision does not affect the quality of assets in the short term, but it does have a positive and significant effect in the long term. Hence, in the long run, sharia supervision can reduce the ratio of non-performing loans to total loans.
Keywords
Shariah Supervision
ARDL Model
Camels
Asset Quality
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  • Receive Date 08 January 2023
  • Revise Date 20 May 2023
  • Accept Date 21 May 2023