Performance and Profitability of Islamic Banks in Saudi Arabia: An Empirical Analysis

Abstract

Purpose:The current study has aimed to identify the impact of banks’ performance on its profitability in context to the listed Islamic banks in Pakistan. Methodology & Design:The study have collected financial and economic data for the past 5 and included twelve listed Islamic banks of Pakistan from World Database Index.Theyears current study has used Panel Unit Root test, Panel Cointegration test, Hausman Test, and Granger Causality as econometrics data analysis techniques using computer software namely E views. Results:It has been evidently proven that there is a weak and negative correlation between bank size and liquidity.The results have shown strong but negative correlation between management quality and bank size.The findings have shown a positive and significant impact of operating efficiency and leverage on the return on assets.The results have shown a strong and positive correlation between leverage, operating efficiency, return on assets and capital adequacy.A significant and positive association has been found between return on equity and bank size, liquidity and management quality. Limitations:due to lack of data accessibility from BankScope and other paid databases, factors and determinants of bank performance and profitability were unable to be taken into consideration. Recommendations:Managers should provide better asset/liability management benefits, flexible, but differential, regulation which is likely to increase the confidence of both depositors and investors in Islamic banks and maintain financial stability in the Pakistani Islamic banking industry in the future.