The Impact of the Financial Crisis on the Islamic Banks Profitability - Evidence from GCC

Using pooled data for 24 Islamic banks operating in Bahrain, Kuwait, Qatar, Saudi Arabia and UAE over the 2005-2012 period the current study examines empirically the impact of the global financial crisis on the Islamic banks¡¯ profitability. The study finds that the financial crisis does not have significant impact on Islamic banks profitability. Favorable macro-economic conditions, bank size and equity capital are important factors in increasing Islamic banks¡¯ profitability. Furthermore Increasing owners¡¯ equity decreased the impact of financial crisis on Islamic banks profitability. On the other hand, the impact of the financial crisis on Islamic banks¡¯ profitability increase with increasing banks total assets, liquidity and overhead expenses. The study recommends increasing both Islamic banks¡¯ size and equity capital in addition to reducing their overhead expenses and liquidity in order to increase their profitability and decrease the impact of financial crisis in their performances.