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

Author

Listed:
  • Muhammad Mahmood Shah Khan

    (University of Management and Technology, Lahore)

  • Farrukh Ijaz

    (University of Management and Technology, Lahore)

  • Ejaz Aslam

    (University of Management and Technology, Lahore)

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

Suggested Citation

  • Muhammad Mahmood Shah Khan & Farrukh Ijaz & Ejaz Aslam, 2014. "Determinants of Profitability of Islamic Banking Industry: An Evidence from Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 6(2), pages 27-46, October.
    • Handle: RePEc:bec:imsber:v:6:y:2014:i:2:p:27-46
    DOI: dx.doi.org/10.22547/BER/6.2.2
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    References listed on IDEAS

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    Cited by:

    1. Ejaz Aslam & Aziz Ur-Rehman & Anam Iqbal, 2021. "Does Corporate Governance Matter For Asset Quality Of Islamic Banks?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 24(2), pages 221-236, June.
    2. Roukia Bouhider, 2021. "Econometric study of the effect of deposits on Islamic Banks profitability: Evidence from Malaysia," Economics Bulletin, AccessEcon, vol. 41(3), pages 1292-1302.

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    More about this item

    Keywords

    Islamic banks; profitability; return on assets; return on equity; earnings per share; Pakistan;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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