FACTORS EFFECTING PROFITABILITY OF ISLAMIC BANKS: EVIDENCE FROM PAKISTAN

Abstract

Purpose: The study has aimed to investigate the comparison between Islamic banks of Pakistan based on their profitability using secondary data from financial Methodology: In order to assess reports. the determinants of Islamic banks’ profitability in Pakistan the study has selected listed Islamic banks of Pakistan using their annual reports and audited financial statements during the period between 2013 and 2017. However, to statistically the objective of the study, panel OLS, panel cointegration analyses have been employed using EViews 9. assess Findings: The results of pooled OLS using random-effect analysis have shown that capital adequacy ratio, and loan to asset ratio have negatively significant relationship with ROE, while cost to total asset has negatively insignificant relationship with ROE. Bank size and interest income have positively significant relationship with ROE while inflation and GDP growth have no relationship with ROE. nonimplications: Banks managers should also work on increasing the size of bank. Investors are more attracted towards the big banks to have their investments. Secondly the depositors also feel it safe to have their money deposited in some big banks. Thus the bank managers should take decisions to increase their bank size in order to generate more profit with the help of gaining trust. Lastly the managers should also be focusing on the non interest income.