Multiple approaches in performance assessment of UAE commercial banks

Abstract

Purpose

The purpose of this paper is to assess performance factors in the UAE commercial banks by using multiple approaches taking into consideration the effect of the bank size.

Design/methodology/approach

The UAE banking sector is divided, for the purpose of this research, into two groups: large and small based on the total assets. The last balance sheet has been used for size classification; those with total assets of AED10 billion and above are considered large banks, whereas banks with total assets less than AED10 billion are considered small banks. This classification criteria led to a sample of 15 large and 23 small banks. The number of banks included in this study is only 38 banks due to the scarcity of available information. Data for the study cover the period from 1996 to 2005.

Findings

The main findings of this study indicate that generally large banks perform better than small banks. The results partially confirmed the hypothesis that there is a positive and significant statistical difference between the small and large banks regarding bank performance indicators. Finally, the results reveal that the ratio of total equity to total assets, which reflect the importance of capital adequacy to commercial banks, is the most important performance indicator taking into account the bank size. In other words, it was the determinative factor in the classification of banks into large or small ones.

Practical implications

The paper's findings support the proposition that in an environment where banks are highly fragmented, mostly small, and are not performing well, there is a need to consolidate the operations of some of these banks. That is, small banks, and even large ones, might be better off, if they are merged into one major institution in order to reduce waste and improve efficiency.

Originality/value

The paper will be of value to UAE banks and those interested in investment in the UAE financial markets.

Citation

Hassan Al‐Tamimi, H.A. and Charif, H. (2011), "Multiple approaches in performance assessment of UAE commercial banks", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 4 No. 1, pp. 74-82. https://doi.org/10.1108/17538391111122212