Determinants of profitability of Islamic Banks: Evidence from Pakistan

Abstract

The study aims to investigate the impact of bank-specific variables (e.g., earnings assets, deposits, advances, non-performing loans, administrative cost and size) on profitability of Islamic banks in Pakistan during 2018-2022. Data of five Islamic banks (IBs) namely Albaraka bank, BankIslami, Dubai Islamic bank, MCB Islamic and Meezan bank were taken from the publications of State Bank of Pakistan. Pooled OLS method used to estimate the results. Results show that earnings assets are positively related to profitability of IBs. In contrast, deposits, advances, non-performing loans and administrative expenses are inversely related to profitability of IBs. Size has no substantial effect on profitability of IBs. In sum, results show that bank-specific variables have material effects on performance of IBs in Pakistan. Findings of this study are fruitful for managers, academicians and researchers to understand the difference between theory and practice.