Internal Determinants of Islamic Bank Profitability: Evidence from Bangladesh

S. M. Rifat Hassan* and Riyashad Ahmed
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S. M. Rifat Hassan*: BRAC Business School, BRAC University, Dhaka, Bangladesh
Riyashad Ahmed: BRAC Business School, BRAC University, Dhaka, Bangladesh

International Journal of Economics and Financial Research, 2019, vol. 5, issue 7, 171-176

Abstract: 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.

Keywords: Bank profitability; Internal determinants; Panel data; Fixed effects model; Islamic banking industry. (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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