The Determinants of the Pakistan Islamic Banking Industry Profitability: Panel Evidence

Islamic Banking and Finance Review, Volume 01, Issue 02, 2015

16 Pages Posted: 3 Aug 2015

See all articles by Farrukh Ijaz

Farrukh Ijaz

University of Management and Technology

Anum Akmal

University of Management and Technology

Syeda Gillani

University of Management and Technology (UMT), Pakistan

Date Written: January 1, 2015

Abstract

The financial sector plays an important role in the economic and fiscal development of a country. A well-built and vigorous banking system is a precondition for the sustainable financial growth of a country. Over the past few years, Islamic banking industry of Pakistan has been facing many problems and challenges to maintain the financial stability. To overcome this issue, it is vital to classify the factors that mostly impact the overall profitability of Islamic banks in Pakistan. Two models were used alternatively for ROA and ROE as dependent variable. A set of internal factors were considered as independent variables including: bank’s size, gearing ratio, operational efficiency, asset management and capital adequacy ratio for the time period 2006-2013. The results indicate that different measures of profitability depend upon different bank specific factors. The study found that profitability of Islamic banks depends on the leverage ratio, operating efficiency, asset management and bank size. Further research can be extended to explore the above findings and to include some other internal factors such as general bank charges, doubtful loans or reserves ratios, and external factor such as GDP, exchange rate and CPI as well.

Keywords: Islamic Banks, Profitability, Return on Assets, Return on Equity, Bank Size, CAR

Suggested Citation

Ijaz, Farrukh and Akmal, Anum and Gillani, Syeda, The Determinants of the Pakistan Islamic Banking Industry Profitability: Panel Evidence (January 1, 2015). Islamic Banking and Finance Review, Volume 01, Issue 02, 2015, Available at SSRN: https://ssrn.com/abstract=2638094

Farrukh Ijaz (Contact Author)

University of Management and Technology ( email )

C-II
Lahore, Punjab 54770
Pakistan

Anum Akmal

University of Management and Technology ( email )

Johar Town - Phase 1
Lahore, Punjab 54770
Pakistan

HOME PAGE: http://www.umt.edu.pk

Syeda Gillani

University of Management and Technology (UMT), Pakistan ( email )

Johar Town - Phase 1
Lahore, Punjab 54770
Pakistan

HOME PAGE: http://www.umt.edu.pk

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