DETERMINANTS OF PROFITABILITY OF ISLAMIC BANKS; SOME EMPIRICAL EVIDENCE FROM PAKISTAN
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Date
2015
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Publisher
UMT, Lahore
Abstract
Financial and banking sector is the backbone of the healthy economic growth
and playing a vital role in deployment of country showing their valuable impact on
capital and money markets. In Pakistan, banks have been facing major challenges in
volatile socio-political circumstances and economic instability over the past few
years. The key purpose of this study is to examine the determinants of profitability in
Islamic banking sector of Pakistan over the period 2006-2014. This study identifies
the significantly influenced determinants of profitability of five selected IBs of
Pakistan. The financial ratios i.e. ROA and ROE are utilized as dependent variables
whereas, five internal indicators [Bank Size, Shareholder's Equity Ratio, Assets
Quality, Ratio of Non-Remunerative accounts to Remunerative accounts &
Operating Efficiency] and one external indicator [Bank Rate of Return], are used
as independent variables. The empirical results showed a strong evidence that all
these variables have a strong significance level and influence over profitability of long
established & well capitalized banks and also evidenced that impact of performance
indicators on ROE & ROA during global financial crises was ignorable for Islamic
banks in Pakistan rather few malfunctioning of scale of economies (Hasan & Diridi,
2010) and (Hassan, 2010).
1 The results also showed that the prominent assets
management does not affect on increasing trend of profitability directly on banks'
books but some patterns of effective management is required to augment the profits
level.