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

Mousa Almanaseer

doi:10.5430/ijfr.v5n3p176

Abstract

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.

Highlights

The 2007global crisis is recognized as a sequence of global crises since the 1970s and started with the subprime mortgage in the United States
The purpose of this study is to investigate the impact of the global financial crisis on Islamic banks’ profitability
The main concern of this study is to examine the impact of financial crisis in GGC Islamic banking profitability

Summary

Introduction

The 2007global crisis is recognized as a sequence of global crises since the 1970s and started with the subprime mortgage in the United States. This crisis is the most important and exceptional one among the other financial crises because of the significant impact it had on the US economy and on other major economies in the world. This crisis occurs in countries with developed more than other countries. The impact of the crisis have even forced around 123 banks in the U.S to file for bankruptcy in the year, including American giant bank Lehman Brother that was never been expected to fail

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