Banks are where investors are most often surprised. Two banks on the same exchange can get opposite verdicts, and it has nothing to do with their size or profit.
Conventional banks
A conventional bank's core business is lending at interest and paying interest on deposits. Because the main activity is prohibited, the first test fails and the debt and income ratios never come into it. Conventional banks and conventional insurers are excluded.
Islamic banks
Islamic banks such as Al Rajhi, Alinma, Bank Albilad, Qatar Islamic Bank, Masraf Al Rayan, Dukhan Bank, Abu Dhabi Islamic Bank and Dubai Islamic Bank run on Shariah-compliant contracts such as murabaha, ijara and mudaraba. Their business activity is permissible by design, so the screen does not exclude them on activity. Their ratios are not used in the same way as for ordinary companies, because a bank's balance sheet is mostly customer deposits and financing.
What to keep in mind
- Islamic windows: a conventional bank with an "Islamic window" is still a conventional bank.
- Check the details: the bank's Shariah supervisory board and its reports tell you how it earns.
- Purification: Islamic banks may still have a small amount of impermissible income, for example from correspondent accounts, and publish it in their annual report.
See the halal stock list for the verdict on each bank we cover. This is an automated screen, not a fatwa.