A Comparative Study About Participation and Commercial Banks’ Profitability In Pre and Post-Crisis Periods

Islamic banking is growing rapidly in recent years around the world. In Turkey Islamic banking is named as participation banks. In Turkish financial system, the banks have important contribution to the economy. And the importance of participation banks is increasing. So comparing the profitability of participation and commercial banks for pre-crisis and post-crisis period will be worth for research. This study aims to investigate whether there is any significant difference between participation banks and commercial banks profitability before and after the crisis. Moreover this study investigates if there is any difference between the profitability determinants of participation banks and commercial banks in pre-crisis period. In this respect, t-test technique is used in the study. The analysis covers the period from 2005 to 2013, and it is divided into pre-crisis (2005-2007) and post crisis periods (2008-2013). The data set is taken from the Turkish Bankers’ Association website (www.tbb.org.tr) In the study 6 main and 8 sub-financial ratios are used. Main ratios are bank profitability, capital structure, asset quality,balance sheet structure, liquidity and cost management ratios. Two financial ratios are used to evaluate the bank profitability which are return on asset and return on equity. The sub-measures of main profitability determinants’ measures are equity/total assets, non-performing loans(net)/total credits, total credits/total assets, total deposits/total assets, liquid assets/short-term liabilities and overhead expenses/total assets.The results showed that the recent financial crisis had an effect on the profitability of both participation and commercial banks. But the recent financial crisis had no significant effect on profitability of commercial banks in Turkey whereas had a significant effect on profitability of participation bank. In order to investigate the reason why participation banks are more affected from financial crisis than commercial banks, t-tests are employed. . Due to t-test results it was found that in pre-crisis period the profitability determinants such as capital structure, asset quality and liquidity ratios behaved differently for participation and commercial banks. Commercial banks have higher equity/total assets and liquidity ratios and lower total credits/total assets ratio than participation banks. As a result we can conclude that in order to be less affected from the financial crisis, it is important to improve the asset quality, capital structure and liquidity ratios.