Determinants of Islamic Bank Profitability

Top 20 FREQUENT WORDS

profitability 141 banks 138 islamic 101 relationship 75 banking 56 profit 56 significant 52 variables 44 vol 44 determinants 43 findings 31 income 30 funds 29 journal 29 positive 29 increase 28 ratio 27 studies 27 results 25 sharing 25 structure 25

DOCUMENT KEY POINTS

working paper series determinants of islamic bank profitability by professor sudin haron march creating dynamic leaders the paper is published in the global journal of finance and economics
usa vol no march

this study finds that internal factors such as liquidity total expenditures funds invested in islamic securities and the percentage of the profit sharing ratio between the bank and the borrower of funds are highly correlated with the level of total income received by the islamic banks
determinants of islamic bank profitability table of contents abstract abstract introduction investigating the determinants of profitability has been one of the more literature review popular topics among researchers in methodology banking studies

based on his simplistic equilibrium model he postulated that the profit sharing ratio the percentage of profit paid by the entrepreneur of islamic banks was positively related to the lending rate of the conventional banks
in such banks ensuring fair practices in dealings with customers and shareholders takes centre stage more so than in conventional banking where much fair practice needs to be imposed by external regulation further details on the concepts and operations of islamic banking system are available elsewhere e

the effects of internal determinants among the researchers who have studied the effects of internal determinants on bank profitability are hester and zoellner haslem fraser and rose fraser et al heggested mullineaux kwast and rose smirlock bourke molyneux and thornton and stienherr and huveneers

mullineaux used a profit function approach in his study and found that balance sheet structure had a significant impact on profitability and depending on the nature of the balance sheet items the relationship can either be negative or positive
the internal variables used were capital ratios liquidity ratios and staff expenses whilst the dependent variables were comprised of the net profit before taxes against total capital ratio and net profit before taxes against total assets ratio

the term has emerged from the structure conduct performance scp theory which is based on the proposition that market concentration fosters collusion among fir miss the assumption is that the degree of concentration in a market exerts a direct influence on the degree of competition among its fir miss highly concentrated market will lower the cost of collusion and foster tacit and or explicit collusion on the part of fir miss as a result of this collusion all firms in the market earn monopoly rents

he used the growth of assets rate as a proxy for measuring the effect of market share on profitability and found that growth of assets did not have a significant effect on profit
the usage of scarcity of capital as one of the profitability determinants was introduced by short

stienher and huverneers also included the size of banks as one of the independent variables in their profitability study and found that it had mixed effect on the performance of various groups of banks
since larger banks are assumed to enjoy economies of scale they are able to produce their output or services more cheaply and efficiently than smaller banks

the inclusion of dummies is verified using the f test based on the following hypothesis in the case where h is being rejected dummies should be included in the equation for it represents the most appropriate model
hence the model for each bank is as follows the above models indicate that for a given value of each regressor the average level of profit is different for each bank

the ratios that have been selected and used as proxies for profitability are tita total income as a percentage of total assets bita bank s portion of income as a percentage of total assets btta net profit before tax as a percentage of total assets btcr net profit before tax as a percentage of capital and reserves atcr net profit after tax as a percentage of capital and reserves the ratio tita is used to capture the effects of internal and external determinants on a bank s profitability

table summary of regression result of a complete profitability model the effects of internal variables this study found that liquidity had a significant positive relationship with total incomes received by the bank tita the bank s portion of income bita and income before tax to total assets btta
since this study used the total financing to total deposits ratio as a proxy for liquidity the result is in line with conventional banking theory page creating dynamic leaders

while crta had a positive and significant relationship with bita and btta a significant inverse relationship was found between crta and profitability measures that were deflated by total capital and reserves btcr and atcr

the profit sharing ratio between banks and the users of funds seems to favour the bank whereas the profit sharing ratio between the banks and the providers of the funds indicates a mutual advantage

Please note, This is an auto generated summary based on sentances position in the document and other factors

DOCUMENT WORD ANALYSIS

Main Category

AlHuda Material\islamic banking

KeyWords

islamic banks banking financial finance investment conventional institutions funds risk financing deposits assets services management international countries equity profit products

DOCUMENT REFERENCES

Number of Pages

22

Published Date

2007-08-13 19:59:58

Full Document

Read the Full Document

Determinants of Islamic Bank Profitability

Contents

Top 20 FREQUENT WORDS

DOCUMENT KEY POINTS

DOCUMENT WORD ANALYSIS

Main Category

KeyWords

RELATED DOCUMENTS

DOCUMENT REFERENCES

Number of Pages

Published Date

Full Document

Navigation menu

Personal tools

Namespaces

Variants

Views

More

Search

Navigation

Tools

Categories