Determinants of Islamic Banking Profitability Academic Essay

The paper analyzes how bank characteristics and the overall financial environment affect theperformance of Islamic banks. Utilizing bank level data, the study examines the performanceindicators of Islamic banks worldwide during 1994-2001. A variety of internal and externalbanking characteristics were used to predict profitability and efficiency. In general, our analysisof determinants of Islamic bank profitability confirms previous findings. Controlling formacroeconomic environment, financial market structure, and taxation, the results indicate thathigh capital and loan-to-asset ratios lead to higher profitability. Everything remaining equal, theregression results show that implicit and explicit taxes affect the bank performance measuresnegatively while favorable macroeconomic conditions impact performance measures positively.Surprisingly, the results indicate a strong positive correlation between profitability and overhead.3Determinants of Islamic Banking Profitability1. IntroductionThe steady expansion of Islamic banks has been the hallmark of the Muslim worldfinancial landscape in the 1980s and 1990s. With a network that spans more than 60 countriesand an asset base of more than $166 billion, Islamic banks are now playing an increasinglysignificant role in their respective economies. Based on their charters, Islamic banks have theflexibility of becoming shareholders and creditors of firms, as well as the advantage of providinginvestment-banking services. In this respect, Islamic banks are rapidly gaining market shares intheir domestic economies1. In retrospect, the presence of Islamic banks exemplifies the empiricalsuccess and the viability of eliminating fixed interest payments from financial transactions.Indeed, consolidation among banks, rising competition and continuous innovation toprovide financial services, all contribute to a growing interest in a detailed critical evaluation ofIslamic banks. In fact, evaluating the performance of Islamic banks is essential for managerial aswell as regulatory purposes. While managers are keen to determine the outcomes of previousmanagement decisions, bank regulators concerned about the safety and soundness of the bankingsystem and with preserving public PLACE THIS ORDER OR A SIMILAR ORDER WITH US TODAY AND GET AN AMAZING DISCOUNT

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