By FADZLAN SUFIAN
ABSTRACT
The present paper attempts to provide empirical evidence on the factors that determines the profitability of Islamic banks in a developing economy. Specifically working within the Malaysian Islamic banking sector, the empirical analysis is confined to the two full-fledged domestic Islamic banks, three full fledged foreign Islamic banks, 11 domestic Islamic Banking Scheme banks, and four foreign Islamic Banking Scheme banks during the period of 2001 to 2007. The empirical findings suggest that overhead costs, capitalization, market share, and credit risk exhibits negative relationship with Malaysian Islamic banks’ profitability. On the other hand, the empirical findings seem to suggest that the larger Islamic banks tend to be more profitable. During the period under study, we find that the impact of macroeconomic conditions has always been negative.
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