Determinants of Profitability of Islamic Banking Industry: An Evidence from Pakistan

Business & Economic Review, 6 (2). 27-46, 2014

20 Pages Posted: 28 Apr 2016

See all articles by Muhammad Mahmood Shah Khan

Muhammad Mahmood Shah Khan

University of Management and Technology (UMT), Pakistan

Farrukh Ijaz

University of Management and Technology

Ejaz Aslam

(IIUM) International Islamic University of Malaysia

Date Written: October 1, 2014

Abstract

The financial sector plays a vital role in the expansion and growth of an economy. The essential factor for the financial growth of a country is a stable banking system. Over the past few years, Islamic banking industry of Pakistan has grown substantially, however, it faces many challenges regarding its financial stability. This study tries to assess factors that affect the profitability of Islamic banking industry over the period of 2007 to 2014. Return on assets (ROA), return on equity (ROE), and earnings per share (EPS) are used as dependent variables. Bank’s size, gearing ratio, non-performing loans (NPL) ratio, operational efficiency, asset composition, asset management, capital adequacy ratio, deposit ratio, gross domestic product (GDP), and consumer price index (CPI) are used as independent variables. Findings of the study indicate that measures of Islamic banking profitability are significantly affected by bank-specific factors such as gearing ratio, asset management, deposit ratio, and NPL ratio and external factor such as CPI.

Keywords: Islamic Banks, Profitability, Return on Assets, Return on Equity, Earnings per Share, Pakistan

JEL Classification: B22, B23, C22, C23, C32, E44, E58

Suggested Citation

Khan, Muhammad Mahmood Shah and Ijaz, Farrukh and Aslam, Ejaz, Determinants of Profitability of Islamic Banking Industry: An Evidence from Pakistan (October 1, 2014). Business & Economic Review, 6 (2). 27-46, 2014. Available at SSRN: https://ssrn.com/abstract=2771031

Muhammad Mahmood Shah Khan

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

C-II
Lahore, Punjab 54770
Pakistan

Farrukh Ijaz (Contact Author)

University of Management and Technology ( email )

C-II
Lahore, Punjab 54770
Pakistan

Ejaz Aslam

(IIUM) International Islamic University of Malaysia ( email )

Pakistan

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