Determinants of Islamic Banking Growth in Pakistan
16 Pages Posted: 20 Feb 2014
Date Written: February 1, 2014
Abstract
This study analyzes the banks’ internal factors to study the determinants of profitability and assets growth. The study also investigates empirically the reasons why Advance to Deposits Ratio (ADR) is low in Islamic banking. Both descriptive and inferential techniques have been used. This is the first inferential study analyzing determinants of profitability in Islamic banks using panel data for the period 2007-12. The results are consistent with theory and other studies conducted in other countries. We find that net markup income is positively associated with expense and assets and negatively with NPLs (Non Performing Loans). Finance to deposits ratio is positively associated with NPL to net income, net markup income and expense to net markup income. Our results suggest that assets growth is positively related with profitability ratios and is also positively influenced by deposits growth.
Keywords: Islamic Banking, Credit Risk, Bank Profitability, Bank Liquidity, Bank Solvency, ADR, NPL, CAR
JEL Classification: G21, G15, E52
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