Influencing factors affecting the rod (return to deposit)
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Date
2016
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Publisher
UMT, Lahore
Abstract
Purpose: The study strives to explore the main internal and external factors of profitability case of world top Islamic banks. The profitability measures which are used in case of this study are ROA, ROE, and ROD. The study is trying to find that what are the main factors which are affecting each of these measures of profitability. Methodology: The panel data of 13 Islamic banks for the time period of 2007-2014 is taken for this study. The variables used in this study are ROA, ROE, and ROD as a dependent variable and size, deposit to assets ratio, capital adequacy, capitalization, cost efficiency, GDP, and inflation. The technique which is used to find the results is Cointegration by using the E-views software. Findings: The study shows that all three models are showing significant impact on profitability it means that all variables which are used in this study have an impact on the profitability of Islamic banks. Although some variables are showing a positive and are showing a negative impact on the profitability of banks. The factors which are showing a positive influence in all three models are capitalization, GDP, and inflation but in the case of ROD model capital adequacy is showing positive influence but in the case of other two models it is showing a negative impact. Cost efficiency, size, and deposit to asset ratio ate the vaiiables which are showing a negative impact on ROE, ROD, and ROA. The rod model is explaining the variables better than other two models. ^^Portance: This study will benefit the managers and policy makers of the banks. This study allows them to find the main factors which are affecting the profitability because these factors are showing effect on past and future. Operatiot^^l Importance: This study is generally very important because it is working the piofitability determinants, it is important to know what is affecting the most to the profitability of banks and more important this study provides a new measure of profitability which is only once used before ROD. It is a very important determinant for the banking sector.