Abstract
The Islamic banking has been found showing a great performance around the globe, which make it an important to understand the factors affecting the Islamic banking. This paper is aimed at studying the role of Interest Rate as economic indicator, Total assets and credit risk as bank specifics, on maintaining sustainable profitability measures, ROE and ROA of all full fledge Islamic banks in Pakistan during the period of 2006-2018. The data collection includes all full fledge Islamic banks of Pakistan i.e., Al Baraka Bank (Pakistan) Ltd, Bank Islami Pakistan Ltd (BIPL), Dubai Islamic Bank Pakistan Limited (DIB) and Meezan Bank Limited. Furthermore, there are two measures of profitability i.e. Return on equity (ROE) & Return on assets (ROA). The regression analysis in the results show that there is a significant role of bank specific variables (total assets, and credit risk) and macroeconomic indicator (interest rate) on ROE, moreover, the role of Credit Risk and Interest Rate is also found significant in influencing the ROA. Keywords: Profitability, Interest Rate, Credit Risk, ROE and ROA DOI : 10.7176/EJBM/11-33-14 Publication date: November 30 th 2019
Highlights
The Islamic banking took birth in Egypt in 1963, from that date the Islamic banking has never stopped growing with significant level of performance around the globe
There are few of studies which have been found studying the impact of the bank specifics and macroeconomic indicators on the profitability of the Islamic Banks around the globe
This paper investigated the role played by the Bank specific and the macroeconomic indicators in strengthening the profitability of the Islamic banks of Pakistan
Summary
The Islamic banking took birth in Egypt in 1963, from that date the Islamic banking has never stopped growing with significant level of performance around the globe. For this purpose, this www.iiste.org study will make use of the Total Assets and Credit Risk as bank specific variable and the macroeconomic indicators, including inflation, interest rate, exchange rate and GDP. H2: There is strong evidence that Total Assets, Credit Risk, inflation, interest rate, exchange rate and GDP are playing a significant role on ROA in strengthening the profitability of Islamic Banks This hypothesis testing could be rationalized by the fact that there are few studies found testing the impact of the chosen variables on the profitability of the banks, for instance, Athanasoglou, Brissimis and Delis (2008) inspected factors affecting profitability of banks of Greece in which he identified Bank specifics, industry specific as well as macroeconomic factors
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