Domestic versus Foreign Islamic Banks: Do they have the same Profitability Determinants?

Abstract

The liberalisation of the Islamic banking industry in Malaysia has given rise to the emergence of many foreign Islamic banks in the country, raising a major concern regarding its impact. This study investigates the impact of bank-specific and macroeconomic factors on bank profitability from 2005 to 2017. Unbalanced panel data of eleven domestic and six foreign Islamic banks have been employed to achieve the study's objective. The findings show that different factors influence the profitability of domestic Islamic banks and foreign Islamic banks. While internal factors significantly affect the profitability of domestic Islamic banks, the profitability of the foreign Islamic banks is more stable and less affected by internal and external factors. The findings provide insights to domestic Islamic banks to improve their operations, profitability, and competitiveness. These banks' better operational efficiency and performance will consequently improve the overall Islamic banking industry.