Evaluating the performance of Kuwait International Bank " An analytical study of the effects of the convert from the conventional system to the Islamic system "

This research aimed to recognize the extent of reflecting the application of Islamic banking system on the financial performance of banks. It’s also helps to find the feasibility sought by the conventional banks by directing to converting to the Islamic system through evaluating the financial performance of the conventional banks before and after its shift; by using the financial indicators and the personal interviews that answered the main question of the research which is; Is there a difference in the bank's performance before and after the shift from the conventional system to Islamic system? The most important research results were that the pre-preparation of the bank shift plan and the creation of its employees is one of the most important factors in the success of the process. Also the possibility of banks converting in the state of Kuwait is available and enacted with laws that regulate working therein. The financial ratios are also main indicators to identify the performance of the bank. The professional vision of the bank converting experience has also suggested the right decision to turn to the Islamic regime to achieve the desired end of all the technical aspects, including banking, financial and legal ones.


INTRODUCTION
The emergence of Islamic banking system in the world has had an influential role in attracting a segment of the community, were in isolation from dealing with the existing banks operating according to the conventional banking system, due to its reservation on the conventional financial transactions. In recent days, the Islamic bank system has became the destination of most customers after confirming the feasibility and effectiveness of its performance compared with the conventional banking system in terms of the stability of the financial position and the ability to cope with financial crises, as demonstrated in the case of the global financial crisis in 2008, and the extent of the proportion of affected both systems there.

1-1 Research Problem
The financial statements of the bank indicate that there are differences in the performance of the bank during the period of the two systems, and accordingly, the researcher has found that the research problem is represented in the bank's different performance before and after its shift between the conventional and Islamic systems, via comparing the bank's financial statements during the two periods and analyses its financial ratios. The general trend towards shift from the conventional to the Islamic bank system which became dominated by the banking sector is what has encouraged the researchers to choose the study of this subject, especially due to the progress effect of the global financial crisis in 2008, bringing the trend as a reaction to hedge against the coming financial crises and the proof of this succession of experiments and transformation processes of banks and its continuity conventional banking system.

1-2 Research questionnaire
The research raises the main following quest: 1. Is there a difference in the bank's performance before and after the shift from the conventional banking system to Islamic banking system?
Having the following sub-questions: 1. Is there a difference in the performance of the liquidity of the bank after its shift to the Islamic system? 2. Is there a difference in the performance of the profitability of the bank after its shift to the Islamic system?
3. Is there a difference in the performance of the activity of the bank after its shift to the Islamic system? 4. Is there a difference in the performance of debt management for the bank after its shift to the Islamic system? 5. Is there a difference in the performance of a market for the bank after its shift to the Islamic system?

1-3 Research Objectives
The research aims to achieve the following: Find the difference in the performance of the bank before and after the shift periods from the conventional system to the Islamic system, and compare the financial performance of the bank between the two periods using the method of financial ratios.

1-4 The research importance
The research importance is represented in finding the added-value; banks seek via the shift from the conventional system to the Islamic one and clarifying the positives of making decisions and its reflection on the efficiency and effectiveness of their performance, in addition to achieving their goals.

1-5 Research Methodology
The analytical descriptive research approach has been used in this research by describing the reality of the financial performance of the bank using the method of financial evaluation of financial ratios, and then analyzes this fact and comparing it to the bank during the periods before and after the transition between the two systems. In addition to relying on the statistical approach which is based on scientific reasoning based on the use of statistical measures (the mean, standard deviation and coefficient of variation), as well as the method of personal interview for the professional experts with competence in the banking, financial and forensic opinion art in their respective areas of specialization.

b. Total shift
The total shift through replacing the compatible business with the provisions of Islamic Sharia at the place of the offense business via shifting the bank entirely in accordance with the provisions of the Islamic Sharia, and this form is one of the most credible forms of shifting, as it is based on moving away from the practice of any acts contrary to the provisions of Islamic Sharia. (D. Yazan Atiyat, 2007, p 52).

3-1 shift plan:
Through the two researchers' view on the cases of banks shift between two different systems, it is evident that The banking system shall shift from the existing system to a new system by passing a transition phase, in which the bank turns between the two systems. This is an application of a placed work plan for the transition process. J a n u a r y , 2 0 1 4

3-2 Kuwait Real Estate Bank's shift plan:
Through the two researchers' queries from the officials in the bank, who cope with its shift phase and through previewing the bank's shift plan between the two systems, we shall here tackle the bank's shift plan by reviewing the process phases: Phase I: Preparation of the shift plan in order to obtain the initial approval of the Central Bank of Kuwait.
This phase shall be deemed one of the basic and crucial phases in the bank's history as it is a phase stating the start of the bank's shift after getting the conditional initial approvals of the Central Bank of Kuwait.
Phase II: Preparing for the shift plan as a prelude to the shift process: it is a phase to prepare a comprehensive plan, taking into account all the shift requirements, either how to shift the existing work and how to liquidate it and also the possibilities that could arise from that, noting the steps and procedures in detail according to a specific schedule.
Phase III: The implementation phase: This phase is one of the most important stages in which rows shall be arranged and shall start implementation with the full capacity of the bank as it has a set of complementary and paralleled-application procedures which must stick to deadlines of all the working groups.

COMPARING THE PERFORMANCE OF THE BANK IN THE APPLICATION OF THE TWO SYSTEM; CONVENTIONAL AND ISLAMIC
In this topic, the two researchers has set the analytical financial analysis of comparative annual data for Kuwait International Bank for the period 2003 to 2011, using some of the most important financial ratios to measure and compare the performance of the bank's financial period of the two systems, accounting for annual data for the period from 2003 to 2006, the Bank's performance to the former system (conventional), The annual data for the period from 2008 to 2011 shall represent the Bank's performance for the new system (Islamic) as well as comparing the performance of Kuwait International Bank with the performance of other Islamic banks in the Kuwaiti banking sector during the period of shift to the new system.

Table (1) Performance ratios used in financial analysis in this study
Financial analysis using financial ratios: The researchers chose financial ratios to include all aspects of the performance of the bank, which consists of five groups: liquidity ratios, and profitability ratios, activity ratios, debt management ratios, and proportions of the market, as been shown in the following Earnings per share to the market value J a n u a r y , 2 0 1 4 First, liquidity ratios: Liquidity is in an index of the bank's ability to meet financial obligations in an effective and suitable timing.
(p.39. 2010, Mabwe and Rober) a. Current ratio: The researchers have studied this ratio because it is an indicator to the margin of safety through the ability of current assets in the bank to cover current liabilities (Naimi and Al-Tamimi, 2008, p 90). It is noted that and notes from the results shown in Table (2) that the average proportion of trading for the bank in the Islamic banking system was ( 74.88 % ) , which is higher than the average in the banking system ( 71.47 % ) . This means that the ability of the bank in the period of the Islamic banking system to meet its current assets versus current without the need to break the deposit futures higher than his ability on it in the conventional banking system. It is also notable that the standard deviation of the gravity low trading average as measured by the standard deviation of the bank in the period of the Islamic banking system (0.066) which is less than the period of the conventional banking system (0.089). The coefficient of variation of the ratio of trading for the bank in the period of the Islamic banking system was (0.089) which is less than the period of the conventional banking system (0.13), and perhaps this indicates a decline in the seriousness of the inability of the bank to meet its ongoing obligation Under the new banking system compared to his ability in the banking system prior to the fulfillment of them. We shall not, here, overlook the signal for the consequences of the global financial crisis in 2008 and its impact on the performance of banks in general and the impact on the financial indicators. It is a period in which the banks have headed to strengthen their traded assets under the unstable financial situation in order to provide coverage for the corresponding obligations of traded assets.

B -Rapid liquidity ratio
The two researchers have studied this ratio. It is equal to the circulation ratio because it includes the long -term investments as assets that can be liquefied rapidly. Therefore, this ratio is used as very strong standards in measuring the company's ability to cover its shortterm liabilities. Thus, the fiscal analysts are looking forward rapid liquidity estimate ed at 1:1 as an acceptable goal for this ratio ( Fahami Mustafa Al Sheikh, 2008, P 33) . According to the results shown in the table no (3) , it noticed that the average ratio of the rapid liquidity for the bank in the Islamic Banking System period was (14.65 %). It is more than the average in the Conventional Banking System period (1.98%). This means ability of the bank to fulfill its liabilities in the emergent conditions with no need to break its delayed deposits in the Islamic Banking System period is more than its ability to do that in the conventional banking system period . It is noticed, in return, from standard deviation that the risk of the decrease of the rapid liquidity ratio than the average measured by the standard deviation of the bank in the Islamic Banking System period (0.095) is more than the Conventional Banking System period (0.011). The difference coefficient of the rapid liquidity ratio in the Islamic Banking System period (0.65) is more than the Conventional Banking System period (0.55).

B -Share return
As for the share return can be measured by the profits available for holders of normal shares. It is also indicates the possible growth in the equity which is reflected, in its turn, on the marketing prices for the shares to achieve the capital profits. Therefore, the administration tries to enlarge the profitability of the share due to the positive effect it has on enlarging the wealth of the longterm shareholders (Al Noeimi and Al Tamimi, 2008, P 4). According to the table no. (5), It is noticed that the average return of the share for the bank in the Conventional Banking System period (24.918) was bigger than the Islamic System Period (11.015). As we mentioned above, the increase in the capital in 2004 has affected positively on the share return due to the increase of the bank's capital throughout the year. The risk of the decreased of the share return than the average for the bank in the Islamic Banking System period (14.06) was near to the pervious Banking System period (14.24) with increase in the pervious system period. As for the difference coefficient, it indicates that the distracting ratio of the bank's share return in the Islamic System period (1.28) was higher than in the Conventional Banking System period (0.75).  (6), comparison of the equity return ratio, it is noticed that the equity return average is increased in the previous banking system (10.46%) more than the new banking system (5.26%). As for the risk of this ratio decrease than the average (0.072) for the bank in the new banking system period , it is higher than the previous banking system period (0.047). It is also noticed that the difference coefficient was higher than the new banking system period (1.37) in the period of the previous banking system (0.45), the matter indicating that the decrease in the profitability ratio comparing with the equity return ratio is less for the bank than the previous Banking System period than the new system. Difference coefficient 0.45 Difference coefficient 1.37 J a n u a r y , 2 0 1 4

D -Assets Return Ratio
It measures the ratio of the assets returns, the productivity of the Kuwaiti Dinar invested in the assets. The higher is this ratio, the better is the profitability of the bank, indicating the correct investment decisions which were taken by the bank administration. Based on the table no. (7), it found that the ratio of the assets return for the bank in the specialized Conventional Banking System period (2.07%) was higher than the comprehensive Islamic Banking System period (0.89%) . This difference can be interpreted as a difference of return between both banking systems. The risk of this ratio decrease than the average for the bank in the Islamic Banking System period (0.011) is higher than the Conventional Banking System period (0.10). As for the difference coefficient, it was higher for the bank in the new banking system period (1.27) compared with (0.48) for the bank in the conventional banking system period , the matter indicating the risk of decrease is higher for the bank's profitability in the new banking system that can be measured by this ratio. Third : Activity ratios These indicators measure to what extent the bank is able to employee the monies collected from the deposits. The higher is the value of these ratios, the more positive is the indicator of the bank in making use of its resources.

Deposits Investment Ratio
The two researchers have studied the measurement of the invested deposits ratio. As this ratio is increased, it indicates better operation efficiency for the investments, thus better performance. Based on the table no. (8), it's found that the average of this ratio for the bank in the period of the Islamic Bank System period estimated at (12.64%) was less than the bank's ratio in the Conventional Banking System period estimated at (28.83%). This indicates that the bank in the new banking system can invest the available deposits with a ratio less than the investment ratio in the previous banking system period. This may explain the reason behind the increase of the rapid liquidity in the bank in the Islamic Banking System period, in addition to the risk of this ratio decrease than the average (0.034). The difference coefficient in the new banking system period is less (0.27) if compared with the previous banking system period (0.49).

B -Resources Employment Ratio :Resources Employment
Ratio expresses to what extent the bank is able to employee its resources. The higher the ratio is, the better the performance is . The resources include the bank deposits, in addition to the equity (Al Momeni Et-al , 2005p 134). In the light of the table no (90), it is found that the resources employment ratio average is less for the bank in the Islamic Banking System period than the ratio average of the bank in the Conventional Banking System period, since it reached , in the light of the new banking system, (9.92%). However it reaches, in light of the previous banking system, (22.70%), indicating that the average employment of the bank's resources in the light of new system is less if compared with the previous system period. It is worth mentioning that the researcher has found that the bank, during the new system period, was interesting in providing the liquidity due to the consequences of the international financial crisis 2008 which made the fiscal sectors keep the liquidity during this period as a compensation for entering in new investments, in addition to the decrease of the investment ratio in this period because of the financial crisis. The difference coefficient was smaller for the bank in the Islamic Banking System period (0.25) than in the previous banking system (0.49), the matter indicating that the risk of bank's investment in the light of the new banking system for its deposits is less than the risk of the bank's investment in the light of the previous banking system for its deposits.

Fourth: Debts Management Ratios
This ratio aims at measuring to what extent the bank uses financial increase and avoids the longterm financial crisis. These ratios are also called the long -term filling ratios.
This ratio was studied by the two researchers to measure the ratio of the financial increase ratio because this increase indicates the increase of the financial risks for the bank. Based on the table no (10) , it found that the average ratio in the Conventional Banking System period (80.31%) is less than the Islamic Banking System period (83.46%). Namely , the financial risks facing the bank is relatively high during the new system period . we have to mention here the effect that the international crisis in 2008 has on the performance of the banking sector generally and its negative consequences on the investments , leading to decreasing the value of the assets , particularly in the evaluations of the real estate market during this period, since the bank has focused its investments on the real estate from its yield of previous allocation in the real estate banking sector.
The risk of decrease in this ratio than the bank's average in the new banking system period (0.016) is less than the previous period (0.022). As for the difference coefficient, it was higher for the bank in the Conventional Banking System period (0.027) than in the Islamic Banking System period (0.02). This means that the risk of decrease in the bank's assets in the Islamic Banking System period is less than the Conventional Banking System period.

B -Ratio of assets to equity
The two researchers have studied this ratio to measure the amount of the risk faced by the bank due to depending on financing the current and capital activities from the long and short -term loans and liabilities (2009, P.260Charles H. Gibson).Based on the table no (5.09), the matter indicating that the bank was more able to face its commitments toward the equity in the previous system period than in the new system period This is reflected from the bank's capital increase through the Conventional System period which has increased the equity value comparing with the liabilities. The risk of this ratio decrease than the bank's average in the Islamic Banking System (0.59) is higher than the Conventional Banking System (0.57). The difference coefficient in Islamic Banking System period (0.12) is less than the Conventional Banking System period (0.14), the matter indicating that the risk of decreasing the financial increase measured by this ratio was less for the bank in the Islamic Banking System period than the risk of decrease for the bank in the Conventional Banking System period.
Multiplying the equity :This ratio shows to what extent the bank can use the debts to finance its assets. In the light of the table no (12) , It is noticed that multiplying the equity was less for the bank in the previous system period (5.13) than the new system period (6.09), the matter showing that the bank's ability to fulfill its commitments in the previous system is higher than its ability in the new system period . As we have mentioned previously, the increase of the bank's capital has contributed in this ability during the aforementioned period. The risk of this ratio decrease than the bank's average in the Islamic Banking System period (0.59) is higher than the risk of the bank in the previous system (0.57). The difference coefficient for the bank in the Islamic Banking System (0.097) is less than the Conventional Banking System period (0.11).

Fifth : Market Ratios
The two researchers show that the market ratios are related closely to the share market value, share price value comparing with the book value taken from the banks' financial lists to measure the effect that the bank has on the normal shares prices in the market.
Ratio of the market value to the book value :the two researchers have conducted t heir study to know the situations of the bank and evaluate it on the part of the investors in the financial market ( Fahmi Mustafa , 2008, p 17) , kindly informed that the average of this ratio is more than 1 for both systems . However, it is bigger in the Conventional Banking System period (2.944) than the Islamic Banking System period (1.254) as it is shown in the table no (13). This means that the chances of improvement and development of the value performance for both systems are available. However, these chances were bigger for the bank in the previous banking system period than the new banking system period. Here, we should mention the effect that the international financial crisis in 2008 has on the performance of the international stock markets generally which , in its return, has a negative effect on the performance of the exchange markets to be reflected on the market value for the included shares.
The risk of this ratio decrease than the bank's average in the Islamic Banking System (0.270) is less than the Conventional Banking System period (0.8). As for the difference coefficient, it was higher for the bank in the Conventional Banking System period ( 0.27) than in the Islamic Banking System (0.216) . This matter indicates that the risk of the decreasing the bank's performance in the Islamic Banking System period in the stock market measured by this ratio is less than its risk for the bank in the Conventional Banking System period.

Ratio of share return to the market value
The two researchers have conducted their study to know to what extent the share is strong in the stock market which increase indicates that the bank's performance in the market is better ( Mohamed Matter , 2006 , P 268) . According to the table no (14), it is found that the average of share return to the market value of the share was higher for the bank in the Conventional System period (4.1471%) than in the Islamic System period (3.8496%) , the matter which indicates that the performance of the share in the previous banking system period is better than the performance in the new banking system period. As we have shown above, however, the share is affected by negative external factors, namely, the international financial crisis in 2008 which has affected the exchange stock generally , leading to decreasing the average during the new banking system period , the target of the study.