Determinants of profit ability in banking: an international comparative study of islamic, conventional and socially responsible banks

Abstract

This study aims to find the determinants of profitability in Islamic, conventional, socially responsible banks covering the period 2005-2012. This paper applies profitability’s indicators as the return on assets (ROA), return on equities (ROE) and net interest margin (NIM) ratios. The statistical approach to find factors of profitability is OLS. The highest ROA and ROE were attained by conventional banks, whereas, SRBs scored the lowest ROA and ROE. By contrast, the SRBs scored the highest NIM measures, while conventional banks have the minimum NIM ratios. Based on Islamic banks’ results, Islamic banking was affected positively by size and z-score while, capital ratio, GDP and inflation decreased earnings significantly. Also, conventional banks were more profitable with higher size, capitalisation, loans and z-score. Finally, SRBs earnings have positive and significant relationships with z-score and market capitalisation growth. On the other side, foreign, domestic and public ownerships impacted the profits badly. According to industry-specific variables, market capitalisation development supported the profitability ratios whereas, GDP growth reduced the profits. This study helps managers and policy makers in banking sector to increase the profits with lower risks by concentrating on positive factors.