Abstract
Purpose
It is difficult to predict when the next financial crisis will happen.
Identifying financial strategies, which help a bank to survive a crisis,
is the main purpose of the paper. This paper examines the financial
strategies of those banks, which managed to retain good credit ratings
both before and after the global financial crisis, so as to throw light
on the characteristics of banks which managed to remain steady and
stable.
Design
This paper analyses Fitch credit ratings of 51 banks Islamic and
commercial banks operating in GCC, divided into pre global financial
crisis (2002 to 2007) and post global financial crisis (2008 to 2013)
periods. Trend and behavior of average ratios of top rated banks in both
the periods is first attempted before moving to “Ordered Choice Logit”
regression method to further analyze the data.
Findings
Size and cost management are very important factors in ratings, both
before and after the financial crisis. As long as asset quality is under
control, liquidity is the focal point in achieving good ratings. Top
rated Islamic banks seem to be following a strategy of allowing capital
ratios to trend down during a crisis as long as capital is well above
the regulatory requirements.
Originality and Value
The paper is the first of its kind which examines credit rating
strategies of Islamic banks as well as commercial banks. The findings
of the paper are extremely important for banks as they throw light on
appropriate strategies to be adopted by banks during crises.