Purpose The purpose of this paper was to investigate the determinants of Islamic banks’ profitability using longitudinal data from 1992 to 2008 of almost all Islamic banks in the world. Design/methodology/approach An unbalanced panel data fixed-effects regression model was used. Findings The results of the study indicate that capital ratio, other operating income, GDP per capita, bank size, concentration and oil prices affected Islamic banks positively. Insurance schemes, foreign ownership and real GDP growth affected Islamic banks negatively. Research limitations/implications This study did not include data beyond 2008 (the financial crisis), which can be considered a limitation to this study. However, evidence suggests that including data beyond 2008 would not have changed the outcome of the study[1]. Originality/value The paper adds to the literature on the determinants of Islamic banks’ profitability for the reasons mentioned above. In addition, this study used a purified sample of Islamic banks (see the Data section for details). Furthermore, to the author’s knowledge, this is the first time deposit insurance has been included in a study related to Islamic banks’ profitability.
This paper will illustrate the historical development of Islamic banking industry. In addition, it will provide information about the Islamic banking development in many countries around the world. This information provides important context for understanding modern-day financial practices.
Purpose The purpose of this study is to investigate the effect of internal and external variables on the profitability of conventional banks operating on developing and underdeveloped countries, the Organization of Islamic Cooperation (OIC) states. Design/methodology/approach In this paper, the author uses ordinary least squares fixed-effects model on an unbalanced panel data set of all conventional banks operating in OIC countries (52 countries included from 57) over the period 1989-2008, 686 banks. Findings The results suggest that equity, foreign ownership, off-balance sheet (OBS) activities, real gross domestic product growth, real interest rate and concentration foster banks’ profitability. In addition, the results showed that the banking sector development and loans will increase banks’ profitability in the long run in the countries of the studies. In contrast, the study reported that deposits lower profitability. The study also revealed that GDP per capita, market capitalization and banks size have no impact on profitability. Practical implications The findings of this study have considerable policy implications. First, policymakers need to regulate nontraditional activities to avoid any financial crisis because banks in OIC countries are heavily engaged in nontraditional activities to boost its profit. Second, policymakers are advised to improve the deposit insurance system to insure the stability of the financial system as well as improving banks’ profitability. Third, policymakers need to improve the efficiency of the stock market, maintain small banking system and encourage foreign investments in the banking system. Originality/value The paper adds to the literature on the commercial bank’s profitability determinants. In particular, such study has not been conducted on OIC countries, and the study included all mainstream banks and incorporated the effect of deposit insurance system so far. Also, pure sample of conventional banks used as many conventional banks in OIC countries have Islamic windows or offer Islamic products. In addition, this study investigated the effect of OBS activities on net interest margin (NIM) because the studies that explored this interrelationship are limited especially for developing and under developed countries. The results showed that OBS activities contributed significantly and positively to return on assets and NIM. Moreover, this paper used a pure sample of conventional banks to avoid any biasness; see data section. Moreover, this study gives an idea about the economic situation and financial conditions of OIC countries during the period of the study.
Purpose Specifically, the purpose of this paper is to identify the key factors affecting banks’ liquidity in developing/less-developing countries. Design/methodology/approach In this paper, the author uses the ordinary least-square fixed effect model on an unbalanced panel data set of all conventional banks (686 banks) operating in the organization of Islamic cooperation countries over the period 1989-2008. Findings The estimation results show that all the determinants have statistically significant relationship with liquidity (except for concentration) but with different signs. On the one hand, capital ratio, foreign ownership, credit risk, inflation rate, monetary policy and deposit insurance negatively affected banks’ liquidity, while on the other hand, efficiency, size, off-balance sheet activities, market capitalization and concentration have a positive link with banks’ liquidity. Originality/value According to the best of author’s knowledge, this is the first empirical study to investigate the determinants of banks liquidity in developing/less-developing countries using a large sample of banks (686 banks) and for long period (19 years).
Purpose The purpose of this paper is to investigate the determinants of Islam banks (IBs) liquidity. Design/methodology/approach In this paper, the author uses a generalized least square fixed effect model on an unbalanced panel data set of all IBs operating in the Organization of Islamic Cooperation countries over the period 1989-2008. Findings The estimation results show that all the determinants have statistically significant relationships with IBs’ liquidity but with different signs. On the one hand, foreign ownership, credit risk, profitability, inflation rate, monetary policy and deposit insurance negatively affected IBs liquidity. On the other hand, capital ratio, size gross domestic product growth and concentration have a positive nexus with IBs’ liquidity. Originality/value According to the best of the author’s knowledge, this is the first empirical study to investigate the determinants of IBs liquidity using cross-country data with a large sample of IBs (110 banks) and over a long period (19 years). Also, the paper included variables that had not been discussed on the previous studies, which used cross-country data, such as efficiency, deposit insurance, monetary policy, concentration and market capitalization.
The conversion from conventional to Islamic banking is one of the important topics in the Islamic finance industry due to non-existence of comprehensive framework for the conversion process contributing to several problems for the converted banks. Thus, the main purpose of this paper is to investigate the effect of conversion from conventional to Islamic banking on the converted banks’ operations. In addition, this paper will shed some light on the motivation behind the conversion and the process of conversion as well as providing answers to some of the problems that could hinder the conversion process. The analytical method used is ratio analysis (t-test) on the data extracted from BankScope database of five banks operating in the Gulf Cooperation Council (GCC) countries. The findings show that conversion helped to improve the performance and financial position of the converted banks, leading to sharp increases in assets, deposits, equity, and net income. Despite these benefits, however, the converted banks' profitability, efficiency, asset quality, liquidity, and risk indicators do not improve. This dichotomy may be due in part to the management’s inability to utilize the banks’ funds more efficiently to bring performance in line with increases in assets, deposits, equity, and net income. The findings indicate that the conversion methods play an important role in the conversion process because choosing the wrong method could slow or rescind the conversion. Thus, this study suggests that the conversion method and banks' management competencies must be taken into account prior to conversion.
This article aims to identify the determinates of the rate of return on deposits in Islamic banks. The study, according to the best of my knowledge, is the first study to investigate the factors affecting the rate of return in Islamic banks using cross-country data with a large sample of banks and for a prolonged period. To achieve its aim, the author used data from almost all Islamic banks in the world for a 20-year period (1989)(1990)(1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008). The data were analyzed using a two-way fixed-effect model. The empirical results demonstrate that capital adequacy (default risk), credit risk, age, economic growth, and concentration significantly and negatively influenced the return on deposits in Islamic banks. The results also suggest that foreign ownership, size, inflation, and oil prices had significant and positive effects on the rate of return. Moreover, the results indicated that deposit insurance (positive), interest rates (positive), and deposit growth (negative) are not determinants of the rate of return in Islamic banks.
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