Banking Performance in OIC Member Countries: A Panel Study of Selected Islamic Banks

Abstract

The Islamic finance industry has witnessed an interrupted progression globally during the last few decades owing to its sustainable and asset-based nature which promotes growth and development. The aim of the study is to investigate the performance of selected Islamic banks in Organization of Islamic Cooperation (OIC) Member countries by employing the System GMM dynamic panel estimator on a sample of 130 Islamic banks. The results suggest that profitability of Islamic banks is not only influenced by factors related to management decisions but also to changes in macroeconomic environment. Among the bank specific variables, the results suggest that capitalization, asset quality, efficiency and bank size are the key drivers of bank profitability. Furthermore, the findings show that the level of inflation has a positive significant effect implying that Islamic banks perform better during inflationary periods, while real GDP growth rate per capita has no significant impact on profitability. As a policy implication, the further improvement of capital adequacy guidelines and risk management practices for Islamic banks in OIC member countries is eminent. This would further enhance Islamic banks in the global financial industry characterized by increased fragilities in the overall banking sector.