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Table (1/2): Ethical Index Factors







Products and services are identical.

Congruence  of charge.

Standards and rules of services are congruent.

Reviewing  banking ethical performance

Making incentives for ethical practices.

Maintaining   customer information privacy

Banks are  developing  guarantee systems to poster investments.

9. Research methodology:

   9.1 Data collection:

- The sample period begins from 2007- 2014.

- The data are available from central bank of Egypt publications and banks' reports.

    9.2 Population and sample:

The population of the study is the Egyptian banking sector. The sample of the study consists of 35 banks that were surveyed.

   9.3 Variables of the study:

' Independent variable is corporate social responsibility (CSR) that is measured by ethical banking index (EBI).

' Dependent variable is corporate financial performance that is measured by:

- Return on assets (ROA)

- Return on Equity (ROE)

Table (2): Descriptive statistics for the variables

The mean The standard deviation

ROA 1.0 0.9

ROE 1.99 1.91

Ln Assets 3.7 1.7

Lev. 0.57 0.55

NPL 4.1 5.6

9.4 The field study:

 To construct the ethical banking index based on the opinions of all stakeholders; questionnaires were distributed to 35 banks including managers, employees and customers. The questionnaire contains ' Likert five scale questions. The data are collected for the period from 2010-2015. This period includes the financial crisis and the political uprising of 25th Jan revolution.

9.5 The statistical model:

The complete case egression model:

The scores of ethical banking index falls between 0 and 1, it means that the independent variable is limited to certain values (censored).

Linear regression model is not appropriate to deal with censored independent variables, as it produces biased estimators. A large number of studies use the complete case analysis method to address the problem of truncated covariates (Roberto, R. and Thomas,M., 2007).  

9.6 Why use the CC Regression analysis:

a. When the sample size is large and the censored data is relatively small; the use of complete case analysis provides consistent and unbiased estimates of the regression coefficients.

b. To avoid the problem of biased and inconsistent estimators  

We use the maximum likelihood method to solve for ''i and ''i..

Where the distribution of y is the product of X and ''i. And the likelihood of y

The formula contains two products; the first is over the observations undertaking high ethical banking index where Xi > 0, (not censored) and the second product is over the observations that are censored where Xi = 0


Xi   is the vector of censored independent variables.

''i  is the vector of unknown parameters.

''i   N( 0, '')

 Research hypotheses:79.

Hypotheses 1: There is a significant relationship between EBI   and ROA.

Hypothesis 2: There is a significant relationship between EBI

    and ROE.

10. Empirical study:

The study uses the complete case regression analysis to investigate the relationship between CSR measured by the ethical banking index (EBI) and the bank performance. Including control variables that are:

Bank size: the natural algorithm of total assets is a proxy for bank size.

Financial leverage: the total liabilities to total assets is a suitable measure of financial leverage.

   10.1 Results and discussion:

   The reliability test:

The study used Alpha Chronbach's to-test the reliability and stability of the questionnaire. And to be certain of the reliability of respondents in answering questions.

Table (3): Reliability test

Chronbach's alpha No. Of values The variable

0.87 3 Transparency

0.79 4 Social responsibility

0.74 5 Honesty

0.53 3 Compliance

0.82 4 Reliability  

0.57 1 Guarantees

0.0.72 20 Total

It is obvious that the overall reliability measure is good > 0.7, and that is very acceptable and suggests a relatively high internal consistency. In addition, it indicates that the questionnaire is internally consistent and reliable such that we cannot omit a single part can without harming its reliability.

Table (4): The correlation matrix

F1 F2 F3 F4 F5 F6

F1 1 0.19 0.85 -0.27 0.76 -0.09

F2 1 0.25 0.55 0.09 0.5

F3 1 0.34 0.77 0.08

F4 1 0.14 0.45

F5 1 0.14

F6 1

The correlation matrix revealed that there is a strong relation between compliance, social responsiveness and guarantees; on the other hand, there is a high association between honesty, reliability and transparency.

    Table (5): The weighted ethical banking index

Weight Ethical banking factor

0.21 F1: transparency

0.28 F2: Social responsibility and responsiveness.

0.15 F3:Honesty and integrity

0.16 F4: Compliance

0.16 F5:Reliability

0.04 F6: Guarantee.

The following scores of EBI for the Egyptian bank were obtained:

    Table (6): The mean scores of EBI

Mean of EBI score No. Of banks Bank type

0.52 3 State-owned banks

0.45 25 Private banks

0.12 7 Foreign banks

The banks were classified into two groups according to compliance with EBI (high compliant & low compliant); It was found that about half of the Egyptian banks adopted about 55% of ethical bank policies. While the other half adopted about 11% of ethical activities. In addition, the following results were obtained.

Table (7):  Ethical index results

Low compliant High compliant Total no. of banks Category

1 2 3 State-owned banks

12 13 25 Private banks

5 2 7 Foreign banks

18 17 35 Total

To investigate the relationship between CSR (measured by EBI) and bank performance using the complete case regression analysis using the high EBI scores as the independent variable and the (ROA, ROE, Ln TA, Lev and NPL)

For display purposes, The EBI in relation to accounting ratios was divided into two parts: part (1) includes F1, F2 and F3:

Table (8): results of regression model of F1, F2, F3 and financial performance

F3 F2 F1

0.227 1.98 1.89 intercept

0.115 0.029 1.17 High EBI

0.007 0.16 .917 ROA

0.002 0.092 1.97 ROE

0.037 -0.0036 2.03 Ln Assets

0.003 0.0016 -0.113 Lev.

-0.161 0.004 -0.118 NPL

The results show that the most weighted factor that has a positive impact on bank performance is the transparency as an important factor of ethical banking. It includes revealing the kind of projects that banks are funding, reporting maturity date of large loans. It reflects the way a bank uses its customer deposits.

Honesty and integrity is essential to reduce unfair practices. These findings are consistent with the results of the study of Soliman et al, 2007.

 Social responsibility and responsiveness is the third factor of importance. Its effect is apparent through lending projects that are socially responsible and have high value added and restricting loans to projects that harm the environment. Moreover, providing low interest rate loans to small and medium size projects.  

Table (9): Results of regression of F4, F5, F6 and financial performance   

F6 F5 F4

0.896 2.26 0.22 intercept

0.96 2.89 0.145 High EBI

1.23 1.18 0.037 ROA

1.9 2.17 0.007 ROE

0.911 2.23 0.087 Ln Assets

-0.054 -1.115 -0.012 Lev.

-1.22 -0.113 0.3 NPL

Providing non-conventional guarantees of repayment of loans has a significant impact on profitability and asset growth. It has the ability to reduce the leverage of banks through improving the customer credit score.

The results indicate that banks that produce such kinds of guarantees are more profitable and have more assets growth potentials. As those banks are more energetic and have the ability to improve the credit score of their borrowers in the short run.

Board of directors involvement in reviewing ethical performance and putting incentives for ethical practices (reliability) have a positive impact on profitability, it also reduces the bank leverage but it doesn't affect the growth potentials.

10.2 Conclusion and recommendation:

1) Egypt has taken wide steps on the road of privatization and structural reform program. This strengthens the soundness and resilience of the banking sector in the period of financial crisis in 2008-2009 and the period that follows.

2) Egyptian revolution caused many sufferings to the Egyptian economy such as increasing poverty, unemployment rates and social disturbance. Hence, banks were required to take a greater role in the economic development.

3) The central bank of Egypt has taken a bunch of effective procedures in response to the Egyptian revolution and its consequences on the banking sector through applying kind of special measures that comply with  certain issues such as the issuance of the circulars and the  guarantees' to all deposits in the banking system.   

4) The results of the study indicate that the high score EBI banks reported better accounting results and financial performance, suggesting the notion that bank involvement in social responsible activities do not harm shareholders' wealth.

5) The high EBI banks are more oriented toward the stakeholder model that includes their relationships with customers, employees, the society and their shareholders also.

6) There is a significant relationship between high score EBI banks and financial performance.


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