A Comprehensive Examination of Internal Factors Impact on Islamic Banks Profitability in Pakistan: A Quantitative Analysis

Nasir Abbas, Muhammad Ali Raza, Zainab Paracha and Muhammad Sadiq Shahid

Journal of Accounting and Finance in Emerging Economies, 2023, vol. 9, issue 4, 599-612

Abstract: 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.

Keywords: Islamic banking profitability; Internal factors; Panel data regression (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:src:jafeec:v:9:y:2023:i:4:p:599-612

DOI: 10.26710/jafee.v9i4.2885

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