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This paper empirically examines the impact of bank specific characteristics in determining the Islamic banking profitability in Bangladesh. Research period covers 2010–2017. Research method is a panel analysis. Fixed effects model is applied based on the Hausman test. The study takes return on assets (ROA) as the proxy of profitability. Company specific explanatory variables for the study are bank size, capital-to-risk assets (CRAR), investment-to-deposit (liquidity), non-performing investment (NPI), and cost-to-income. The study finds 4 out of 5 variables statistically significant. However, liquidity slightly misses the significance level. We have found CRAR and cost-to-income are negatively correlated, and liquidity is positively correlated to bank profitability as our expectation. On the other hand, estimation shows a negative correlation between bank size and profitability. Moreover, NPI is found to be positively correlated to ROA because Islamic banking industry’s very low percentage of non-performing investment (3.3%) could not inversely affect the profitability.
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... The results are presented as a percentage, which is formulated by dividing total shareholders' equity by total assets of the company, and it represents the value of assets on which shareholders have a residual claim in case of the liquidation. Hassan and Ahmed (2019) found that the variable does not have a strong impact on bank performances in countries with different levels of income. On the other hand, Hassan and Ahmed (2019) stated that the variable is highly significant and positively related to ROA both conventional and Islamic banks; therefore, this indicator has insignificant impact to the CE and PE. ...
... Hassan and Ahmed (2019) found that the variable does not have a strong impact on bank performances in countries with different levels of income. On the other hand, Hassan and Ahmed (2019) stated that the variable is highly significant and positively related to ROA both conventional and Islamic banks; therefore, this indicator has insignificant impact to the CE and PE. However, in case of the significant drop in the ratio, it might indicate a problem in the CE or PE as they are part of the equities retained earnings. ...
... Likewise, AAIR is the annual pricing rate raising of the goods and services, in which consequently lead to fall in purchasing power of the product (General dictionary). Hassan and Ahmed (2019) declared that the rate of inflation does not seem to have a significant effect on the bank's CE/PE. Due to inflation which was largely moderate in their sample countries between 2004 to 2010, Mghaieth and Khanchel (2015) established the rate of inflation as unrelated to CE. Bas on Sanusi and Meyer (2017), on their study on the relationship between the inflation and the financial development of the financial institutions of the South Africa during the year 2016 to 2017, have concluded that, the verbal's between the inflation and the financial development are bound together for the long run of the business and there is significant impact by the inflation to the financial development and performance of the business due to the strong correlation of these two variables (Sanusi, Meyer, and Ślusarczyk, 2017). ...
... Unless this condition is met, the hypothesis will be rejected. Specifically, Hassan and Ahmed (2019). ...
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This study aims to investigate the impact of bank-specific internal factors on the profitability of the banks. The study, which employed an explanatory research technique, used secondary data from major sample merger commercial banks' annual reports for fiscal years 2014 to 2022. The population consists of 20 scheduled banks, with a sample of five merged banks selected purposefully. Bank size, liquidity ratio, dividend payout ratio, capital adequacy ratio and non-performing loans ratio are the five independent variables that the study uses to analyze the association between Return on asset, the dependent variable. The study used descriptive statistics, multiple regression models, and MS Excel for data analysis. The findings indicate that both BS and NPLR have a noteworthy detrimental impact on ROA, whereas LR has a considerable beneficial effect. However, the results revealed no statistical significance for CAR and DPR. The study concludes that among the internal factors analyzed, LR is the most influential factor on bank profitability. These findings provide valuable insights for regulators, bank management, and other stakeholders, highlighting areas for potential performance improvement. The inclusion of macroeconomic aspects with the potential to impact the profitability of Nepalese banks should be further examined.
... External factors like GDP also play a role, with inflation impacting positively but overall GDP showing a negative correlation with profitability. In Indonesia, Hassan and Ahmed (2019) examined Islamic bank profitability in Bangladesh focusing on bank-specific characteristics. Their research, spanning from 2010 to 2017, offers further insights into how internal factors can influence profitability in different contexts. ...
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Purpose: This study examines the internal factors that are influencing profitability in Pakistani Islamic banks during the period 2016-2021. Design/Methodology/Approach: The analysis utilizes panel data regression models to address potential estimation bias. Findings: The study covers key Pakistani Islamic bank financial performance criteria. Internal factors significantly affect ROE and EPS. Gearing and capital ratios enhance ROE/EPS. Due to increased capitalization and leverage, Islamic banks' capital management is vital to profitability. ROE and NIM models are affected by deposits. Deposit funding drives Islamic bank profitability and interest income. In the NIM model, liquidity and NPL ratios affect ROE and EPS significantly. Asset quality and liquidity management effect interest income, not profits. Bank size does affect ROE and EPS models, which is notable in the findings. Islamic financial institutions can prioritize specialization and efficiency over expansion. These numbers indicate Pakistani Islamic banks' finances. Capitalization, leverage control, and deposit mobilization are key to financial success, while risk management ensures stability and profitability during economic downturns. Implications/Originality/Value: The detailed investigation shows Pakistan's Islamic banking profitability. Deposit management, capital structure, and asset quality impact profitability. Capitalization and leverage improve earnings, therefore financial management matters. Deposit management is vital to profitability since it affects performance. Recession-sensitive Islamic banks show resiliency. NPA mitigation and liquidity management affect net interest margin, as a key driver. This research offers valuable insights for internal management strategies and regulatory frameworks aimed at enhancing the stability and growth of Islamic banking in the region.
... Dolgun & Mirakhor (2021) showed that there is a direct and positive relationship between liquidity and profitability indicators studied. Also, Hassan & Ahmed (2019) illustrated that the liquidity ratio has a positive effect on the profitability of Islamic banks in Bangladesh, represented by the ROA. ...
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Abstract Islamic Banking in Pakistan has been continuously growing since 2001 and currently, five full fledge Islamic Banks are working. This study has investigated the inside factors which effect Islamic Banks’ profitability. These internal factors include Capital Adequacy Ratio, Deposit ratio, operating expense with total assets ratio, Size, and Debt to Equity Ratio, and were taken as Independent variables this study, whereas profitability return on asset was taken as a dependent variable. This study has covered the period of 2015-2020 and data was gathered from financial reports of Islamic Banks, previous studies which were conducted in Pakistan did not cover up to 2020 and mostly covered both internal and external factors but in this research, we have emphasized on internal factors exclusively. Panel Data was analyzed with step-by-step statistical techniques like POLS, BRUESCH-PAGAN TEST, RANDOM EFFECT, and HAUSMAN TEST and finally, Fixed Effect Model was applied through EViewsversion-11. According to the investigated results of this study, two independent variables capital adequacy and operating expense ratio had a positive and major influence on return on assets (Dependent Variable).Hence null hypothesis of these variables was rejected and concluded that only the capital adequacy ratio and operating expenses with total assets ratio positively affected Islamic banking profitability.
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