Influencing of Specific-Firm Characteristics on Islamic banks’ Profitability; Evidence from Gulf Co-operation Council Countries

Abstract

The Islamic banking industry is considered one of the fastest growing financial sectors in the first decade of the 21st century. The Islamic banking system operates in compliance with the codes of Islamic Shariah, and its profitability plays an important role in the economic growth of Gulf Cooperation Council (GCC) countries. This study aims to determine the impact of bank-specific characteristics, consisting of leverage, capitalization, operating expenses, number of branches, and bank size on profitability of the Islamic banks. After controlling for macroeconomic environment, the robust of OLS regression analysis for the panel data showed that capital adequacy, operating expenses, and number of branches are the most important determinants affecting Islamic banks’ profitability in GCC countries. A health capital, a greater number of branches, and lower bank costs lead to increase profitability. Size has a positive association with the level of profits, and is just significant with return on equity (ROE). Consistent with the extant literature, the results showed that GDP per capita has a significantly positive effect on Islamic banks’ profitability.