The impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks: an empirical evidence

Author:

T. Yahya Ali1,Akhtar Asif1,I. Tabash Mosab2ORCID

Affiliation:

1. Department of Business Administration, Aligarh Muslim University.

2. Ph.D., Assistant Professor, College of Business, Al Ain University

Abstract

This study investigates the impact of political instability, macroeconomic and bank-specific factors on the profitability of Islamic banks in the context of Yemen. The study used two common measures of profitability, namely, Return on Assets (ROA) and Return on Equity (ROE) as dependent variables. Seven key independent (internal and external) variables are also used. There are five fully-fledged Islamic banks (IBs) working in Yemen. The study selected only three out of five IBs due to the availability of data for the period ranging from 2010 to 2014. The descriptive and multiple regression analyses were done. The results of the study indicate that operating efficiency and financial risk have negative and significant relationships with ROA and ROE. The findings also show that capital adequacy has a negative and insignificant relationship with ROA and ROE. Furthermore, the study reveals that assets size (LogA), assets management, liquidity and deposits have a significant and positive impact on banks’ profitability. GDP, Inflation rate (IR) and Political instability have positive and significant impact on Yemeni banks’ profitability. Based on the best knowledge of the authors, this study is considered one of the first and pioneering studies that determine the factors affecting the profitability of Islamic banks of Yemen. Therefore, the study gives good insights for the policy makers, regulators and interested parties for enhancing the profitability of Islamic banks in Yemen.

Publisher

LLC CPC Business Perspectives

Subject

Strategy and Management,Economics and Econometrics,Finance,Business and International Management

Reference19 articles.

1. Risk Management Practices in the Republic of Yemen : Are Islamic Banks Different ?

2. Ahangi, P. (2013). Profitability of Islamic banks in Malaysia (A Thesis Submitted to the School of Graduate Studies of the University of Lethbridge in Partial Fulfillment of the the requirements for the Degree).

3. Examination of Profitability between Islamic Banks and Conventional Banks in Bangladesh: A Comparative Study

4. Haron, S. (2004). Determinants of Islamic Bank Profitability. Global Journal of Finance and Economics, 1(1), 1-22. - http://ie.um.ac.ir/parameters/ie/filemanager/%D9%85%D9%82%D8%A7%D9%84%D8%A7%D8%AA%20%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF%DB%8C/Determinants%20of%20Islamic%20Bank%20Profitability.pdf

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