Is the profitability of Islamic and conventional banks driven by the same factors?—A study of banking in the Middle East

Abstract

The purpose of this paper is to contribute to the existing literature by investigating the determinants of the profitability of Islamic and conventional banks in the Middle East region and revealing the most important factors for these two types of banks. Few papers have studied the performance of Islamic banks and compared their performance with conventional banks. The results from these limited research papers are also various, mainly because the sample sizes are small, or they have analysed data only from one country. Our research used a fixed effect panel data analysis on a sample of 270 banks (111 Islamic and 159 conventional banks) from 12 Middle East countries. We used an unbalanced annual panel of data covering the period 2012–2020. The results show that bank size, equity to assets, annual GDP growth, and annual average oil price have a significant positive effect on Islamic banks’ profitability, while non-performing loans to total gross loans and cost of running operations to operating income have a significant negative effect on both bank types. The results also show that non-performing loans to total gross loans and annual GDP growth contribute more to conventional banks profitability, while oil price contributes only to Islamic banks performance. Inflation and net loans to total assets have no effect on bank profitability for either Islamic or conventional banks. Furthermore, we also found that the Islamic banking industry had a more competitive structure. Our findings have important implications for managers, policy makers, investors and other stakeholders. They can help them to make decisions regarding investments, plans, budgeting, evaluation and the management of business operations.

Analisa Dampak Rasio Keuangan Perbankan Terhadap Profitabilitas Bank Berdasarkan Modal Inti (Kbmi) Pada Kelompok Bank Di Indonesia

“…Strategi pendanaan yang diterapkan oleh bank mempengaruhi profitabilitas secara keseluruhan, dengan tingkat aset yang didanai oleh deposito yang lebih rendah akan meningkatkan profitabilitas (O'Connell, 2023). Dengan mengembangkan penelitian terbaru yang sudah ada terkait faktor-faktor penentu profitabilitas perbankan, antara lain CASA dalam melihat posisi likuiditas perbankan (Mehzabin et al, 2023;Sobol et al, 2023;Shen et al, 2023;O'Connell, 2023;Pham & Nguyen, 2023;Ayalew, 2021;Mohanty, 2021;Farhadi & Fooladi, 2021;Pak, 2020;Ghosh & Sanyal, 2019).…”

“…BOPO untuk melihat seberapa efisien dalam operasional dalam menghasilkan profitabilitas (Sobol et al, 2023;Mehzabin et al, 2023;Pham & Nguyen, 2023;Ghosh & Sanyal, 2019), dan LDR untuk melihat kapasitas pendapatan dari penyaluran kredit (Ayalew, 2021;Al-Matari, 2023;Khalifaturofi'ah, 2023;Farhadi & Fooladi, 2021) serta menambah literatur perbankan di Indonesia yang sudah ada terkait faktor penentu profitablitas perbankan (Khalifaturofi'ah, 2023;Anindyajati & Hanggraeni, 2022;Khabibah et al, 2020;Andhikatama, Muda, & Daulay, 2016). Penelitian ini akan berfokus kepada financial perfomance di dalam heterogenitas perusahaan berdasarkan KBMI terbaru dan periode tahun (PRE-Covid-19 dan POST-Covid-19) untuk melihat profitabilitas perbankan di Indonesia dengan menguji beberapa rasio keuangan, posisi likuiditas perbankan (CASA), kapasitas operasional (BOPO), dan kapasitas pendapatan dari penyaluran kredit (LDR) dalam menghasilkan profit.…”

“…Efisiensi biaya memiliki dampak positif dan signifikan terhadap profitabilitas pada bank sektor publik (Rakshit, 2023). Sedangkan pada bank syariah, beban biaya operasional berdampak buruk dalam mencapai kinerja yang diinginkan sehingga diperlukan efisiensi biaya dalam hal ini (Sobol et al, 2023), begitu juga pada perbankan di Indonesia (Anindyajati & Hanggraeni, 2022). Tingginya biaya operasional tentu akan berdampak buruk pada kinerja keuangan perbankan (Pak, 2020).…”

A Cross-Country Analysis of Islamic Bank’s Performance in Malaysia and Indonesia

“…While Ghouse et. al., (2022) and Sobol et. al., (2023) found that Islamic banks exhibited superior performance compared to conventional banks during pandemic Covid-19 in Organization of Islamic Cooperation (OIC) countries.…”

SSB Characteristics and Integrated Reporting Quality in Islamic Banks : Evidence from MENA zone

“…Emerged as an alternative banking and finance model, this type of banking operates according to the principles of shariah, which prohibits interest (riba), uncertainty (gharar), gambling (maysir), and other unethical practices (Siddique et al, 2023). Thus, Islamic banks (therefore IB) should contribute richly to the achievement of the major socio-economic goals of Islam such as economic prosperity with full employment and an optimum rate of economic growth, socio-economic justice, and equitable distribution of wealth and monetary stability (Sobol et al, 2023). In order to ensure this ethicality, they need to conduct operations in accordance with the principles of shariaa.…”