Impact of Dividend Regulation on Islamic Banking Performance in Pakistan

Abstract

Islamic banks operate in a similar environment but have different dividend regulations. There appears to be a lack of agreement regarding Pakistan's dividend regulations. Dividend distribution is essential to a company's financial success, but it has not yet been resolved in the finance field. In Pakistan, this study was undertaken to determine whether dividend distribution regulation has a significant impact on Islamic banking's financial performance. This study has the following specific objectives: to examine the impact of RIBA on Islamic banking performance in Pakistan; and to determine the impact of dividend payout ratio on that performance. A theoretical framework was developed based on dividend irrelevance and signal impact. The study was conducted with a descriptive research design A study of all five Islamic financial institutions registered with SBP was performed. During (2019-2023), data was collected. Using a secondary data collection sheet of paper, secondary data was obtained from the State Bank of Pakistan's Supervisory Reports. Secondary data was also collected from Islamic banks. Data processing and analysis were performed with STATA software version 13. Panel data regression and descriptive analysis were conducted to analyze the data. The results were presented in tables and figures. The data were analyzed using multiple regression models, and SPSS version 21 was selected as the data analysis program. Statistics show 76.9% of Islamic banks fail to generate sufficient income to cover financing costs. There are three types of operating costs: total operating costs, loan loss reserves, and financing costs excluding capital costs. According to the analysis of variance (ANOVA) table, the predictor factors significantly impacted the predictor variable at the 5% level of significance. Islamic banking organizations perform by 0.347 points for every unit change in dividend payout ratio or RIBA, respectively. Consequently, Islamic banking institutions must take advantage of all available borrowing opportunities in order to continue to operate in the lending sector. As well as reinvesting earnings in their business, they must also grow it.