DETERMINANTS OF PROFITABILITY OF ISLAMIC BANKS: EVIDENCE FROM ISLAMIC BANKS OPERATING IN PAKISTAN

Abstract

The main objective of this study is to investigate the determinants of profitability of Islamic banks (IBs) in Pakistan, in order to evaluate the relative importance of external and internal determinants of IBs profitability. This research study annual data for the period of 2008-2019. Panel data regression is used. Dependent variable is ROE that proxies for profitability. Micro economic variables are Capital (Cap), Management Expense (Mgt Exp), Bank size (Bsize), Deposits (Dpst) and macroeconomics variables are Gross Domestic Product (GDP) & Inflation (INF) are used as independent variables. The author find out four variables are significant at 5% i.e. cap, Mgt Exp, Bsize and Dpst of IBs. Here, cap, Bsize and dpst have significant and positive relationship with profitability of IBs; rather Mgt exp has significant & negative relationship with profitability of IBs; while there is insignificant relationship of GDP and INF with profitability of IBs in Pakistan.