Banks’ Profitability in an Islamized Financial System: Comparative Study between Iran and Sudan
Keywords:
Islamic bank, Profitability, Comparison, Sudan, Iran, Islamized Financial System.
Abstract
The main objective of this paper is to explore and compare the drives of banks’ profitability in Iran and Sudan as both countries Islamized their financial systems, and according to the best of my knowledge is the first paper to compare banks’ profitability on the only two Islamized financial systems in the world, Iran and Sudan. This study employs panel data techniques specifically one-way fixed effect model, data obtained from Bank scope database, to address this paper title for the period 1992-2008. The descriptive statistics results show that Iranian banks are more profitable and have higher loan to total asset ratio in comparison to Sudanese banks. Contrary, Sudanese banks are more liquid; more capitalized and have higher reserves. The regression analysis reported that capital adequacy (positive), loan intensity (negative), management efficiency (negative), lagged GDP growth (positive) and real interest rate (positive) had the same significant effect on banks’ profitability in Iran and Sudan. Meanwhile, liquidity albeit had the same positive effect on banks’ profitability in Iran and Sudan the results were significant in case of Iran. On the other hand, size, credit risk and industry concentration had opposite effect on banks in Iran and Sudan. The effect of size was negative for Iranian banks and positive and insignificant for Sudanese banks. Also, credit risk was negative and significant for Iranian banks and positive for Sudanese banks (insignificant). The same applies for industry concentration as the variable impacted Iranian banks negatively (significant) and Sudanese banks positively (significant).
References
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Owoputi, J., Kayode, O., & Adeyefa, F. (2014). Bank specific, industry specific and macroeconomic determinants of bank profitability in Nigeria. European Scientific Journal, ESJ. 10(25), 408-423.
Pastory, D., & Marobhe, M. (2015). The Determinants of the Commercial Banks Profitability in Tanzania: Panel Evidence. European Journal of Business and Management. 7(13), 212-233.
Ramadan, Z. (2011). Bank-specific determinants of Islamic banks profitability: an empirical study of the Jordanian market. International Journal of Academic Research. 3(6), 73- 80.
Ramadan, I., Kilani, Q. & Kaddumi, T. (2011). Determinants of bank profitability: evidance from Jordan. International Journal of Academic Research. 3(4), 180-191.
Samad, A. (2015). Determinants bank profitability: Empirical evidence from Bangladesh commercial banks. International journal of financial research. 6(3),173-179.
Shafana, M. (2015). Liquidity and Profitability of Financial Institutions in Sri Lanka. International Journal of Science and Research. 4(6), 589-593.
Siddique, M., Khaleequzzaman, M. & Ur-Rehman, A. (2016). Determinants of Islamic Banking Industry's Profitability in Pakistan for the Period 2004-2012. Journal of Islamic Business and Management. 6(1), 41-61.
Sufian, F. (2009). Factors Influencing Bank Profitability in a Developing Economy. Empirical Evidence from Malaysia. Global Business Review. 10(2), 225-241.
Syafri (2012). Factors Affecting Bank Profitability in Indonesia. the 2012 International Conference on Business and Management 6 – 7 September 2012 (pp.236-243), SCRIBD, Phuket – Thailand.
Topak, M., & Talu, N. (2017). Bank Specific and Macroeconomic Determinants of Bank Profitability: Evidence from Turkey. International Journal of Economics and Financial Issues. 7(2), 574-584.
Yigermal, M. (2017). The Determinants of Private Commercial Banks Profitability: In the Case of Selected Ethiopian Private Banks. International Journal of Economic Behavior and Organization. 5(1), 25-35.
Wasiuzzaman, S., & Tarmizi, H. (2010). Profitability of Islamic Banks in Malaysia: An Empirical Analysis. Journal of Islamic Economics, Banking and Finance. 6(4), 51-68.
Wambari, K., & Mwangi, M. (2017). Effect of interest rates on the financial performance of commercial banks in Kenya. International Journal of Finance and Accounting. 2(1), 19-35.
Ahmad, F, Tahir, S & Aziz, B. (2014). Impact of Loan Loss Provision on Bank Profitability in Pakistan. TIJ's Research Journal of Social Science & Management, 3(12), 34-41.
Alharbi, A. (2017). Determinants of Islamic banks’ profitability: international evidence. International Journal of Islamic and Middle Eastern Finance and Management, 10(3), 331-350.
Al-Hashimi, M. (2013). Islamic Banking in Sudan: A Case Study of the Sudanese Islamic Bank’, The Pacific Journal of Science and Technology. 14(2), 268-276.
Al-Jarrah, I. (2010). The Market Structure-Profit Relationship in the Jordan’s Banking Industry. Dirasat, Administrative Sciences. 37(1), 251-261.
Ani, U., Ugwunta, O., Ezeudu, J. & Ugwuanyi, O. (2012). An empirical assessment of the determinants of bank profitability in Nigeria: Bank characteristics panel evidence. Journal of Accounting and Taxation, 4(3), 38-43.
Beckmann, R. (2007). Profitability of Western European banking systems: Panel evidence on structural and cyclical determinants. Discussion Paper Series 2: Banking and Financial Studies, 17. Deutsche Bundesbank.
Baltagi, B. (2005). Econometric Analysis of Panel Data. John Wiley & Sons, West Sussex.
Berger, N. (1995). The relationship between capital and earnings in banking. Journal of money credit and Banking. 27(2), 432-456.
Bonner, C., Van Lelyveld, I., & Zymek, R. (2015). Banks’ liquidity buffers and the role of liquidity regulation. Journal of Financial Services Research. 48(3), 215-234.
Boone, J., & Weigand, J. (2000). Measuring Competition in the Dutch Manufacturing Sector: How are Cost Differentials Mapped into Profit Differentials’, CPB Working Paper No. 131, Den Haag.
Chua, Z. (2013). Determinants of Islamic Banks Profitability in Malaysia’ Working Paper Series SSRN Number 2276277.
Dahiyat, A. (2016). Does Liquidity and Solvency Affect Banks Profitability? Evidence from Listed Banks in Jordan. International Journal of Academic Research in Accounting, Finance and Management Sciences. 6(1), 35–40.
Ebrahimi, M., Arshadi, A., & Salimi, S. (2015). Effective Factors on Bank Profitability in Iran. Journal of Money and Economy. 10(1), 107-129.
El-Kassem, R. (2017). Determinants of Banks’ Profitability: Panel Data from Qatar. Open Journal of Accounting. 6, 103-111.
Elgadi, E. (2016). Assessing the Financial Performance of Islamic Banking: The case of Sudanese banks’, PhD thesis, University of East London, London.
Eltahir, Y., & Mousa, E. (2016). Profitability of Sudanese Commercial Bank (Panel Data Manipulation). Journal of Economics and Finance. 7(6), 84-89.
Gul, S., Irshad, F., & Zaman, K. (2011). Factors affecting bank profitability in Pakistan. The Romanian Economic Journal. 1(39), 61-87.
Hasan, A., & İbrahim, K. (2014). Stock Market Development, Bank Concentration, Ownership Structure, and Bank Performance: Evidence from Turkey. Journal of Economics and Political Economy. 1(1), 49-67.
Hsiao, C. (2007). Panel data analysis—advantages and challenges. Test. 16(1), 1-22.
Heffernan, A., & Fu, X. (2010). Determinants of financial performance in Chinese banking. Applied Financial Economics. 20(20), 1585-1600.
Hooshyari, N., & Moghanloo, A. (2015). Inflation and Profitability: Evidence from Private Banks of Iran. Kuwait Chapter of the Arabian Journal of Business and Management Review. 4(10), 1-5.
Hosseini, E. (2015). Legislation and Case Law: Provisional Profit in Iran’s Banking System: Same Meat, Different Gravy. Electronic Journal of Islamic and Middle Eastern Law. 3, 135-145.
Javaid S., Anwar J., Zaman K., & Ghafoor, A. (2011). Determinants of Bank Profitability in Pakistan: Internal Factor Analysis. Journal of Yasar University. 23(6), 3794-3804.
Liang, Y. & Reichert, A. (2006). The relationship between economic growth and Banking sector development. Banks and Bank Systems. 1(2), 19-35.
Lakis, V., & Baltušytė, D. (2017). iSlAmiC BANkiNG AS AN AlTErNATiVE TO BANkS iN ThE wESTErN COuNTriES. Ekonomika. 96(3), 73-89.
Lartey, V., Antwi, S., & Boadi, K. (2013). The Relationship between Liquidity and Profitability of Listed Banks in Ghana. International Journal of Business and Social Science. 4(3), 48-56.
Lipunga, A. (2014). Determinants of Profitability of Listed Commercial Banks in Developing Countries: Evidence from Malawi. Research Journal of Finance and Accounting. 5(6), 41-49.
Messai, A., Gallali, M., & Jouini, F. (2015). Determinants of Bank Profitability in Western European Countries Evidence from System GMM Estimates. International business research. 8(7), 30-42.
Mirzaei, A., & Mirzaei, Z. (2011). Bank-specific and macroeconomic determinants of profitability in middle eastern banking. Iranian Economic Review. 15(29),101-128.
Mustafa, A., Ansari, R., & Younis, M. (2012). Does the Loan Loss Provision Affect the Banking Profitability in Case of Pakistan?. Asian Economic and Financial Review. 2(7),772-783.
Nour, S. (2013). Technological Change and Skill Development in Sudan. Springer, Berlin, Heidelberg.
Obeidat, B., El-Rimawi, S., Maqableh, M., & Al-Jarrah, I. (2013). Evaluating the profitability of the islamic banks in Jordan. European Journal of Economics, Finance and Administrative Sciences. 56, 27-36.
Obamuyi, T. 2013. Determinants of banks’ profitability in a developing economy: evidence from Nigeria. Organizations and Markets in Emerging Economies. 4(2), 97-111.
Oluwasegun, J. & Samuel, A. 2015. The Impact of Liquidity on Nigerian Bank Performance: A Dynamic Panel Approach. Journal of African Macroeconomic Review. 5(2), 318-324.
Owoputi, J., Kayode, O., & Adeyefa, F. (2014). Bank specific, industry specific and macroeconomic determinants of bank profitability in Nigeria. European Scientific Journal, ESJ. 10(25), 408-423.
Pastory, D., & Marobhe, M. (2015). The Determinants of the Commercial Banks Profitability in Tanzania: Panel Evidence. European Journal of Business and Management. 7(13), 212-233.
Ramadan, Z. (2011). Bank-specific determinants of Islamic banks profitability: an empirical study of the Jordanian market. International Journal of Academic Research. 3(6), 73- 80.
Ramadan, I., Kilani, Q. & Kaddumi, T. (2011). Determinants of bank profitability: evidance from Jordan. International Journal of Academic Research. 3(4), 180-191.
Samad, A. (2015). Determinants bank profitability: Empirical evidence from Bangladesh commercial banks. International journal of financial research. 6(3),173-179.
Shafana, M. (2015). Liquidity and Profitability of Financial Institutions in Sri Lanka. International Journal of Science and Research. 4(6), 589-593.
Siddique, M., Khaleequzzaman, M. & Ur-Rehman, A. (2016). Determinants of Islamic Banking Industry's Profitability in Pakistan for the Period 2004-2012. Journal of Islamic Business and Management. 6(1), 41-61.
Sufian, F. (2009). Factors Influencing Bank Profitability in a Developing Economy. Empirical Evidence from Malaysia. Global Business Review. 10(2), 225-241.
Syafri (2012). Factors Affecting Bank Profitability in Indonesia. the 2012 International Conference on Business and Management 6 – 7 September 2012 (pp.236-243), SCRIBD, Phuket – Thailand.
Topak, M., & Talu, N. (2017). Bank Specific and Macroeconomic Determinants of Bank Profitability: Evidence from Turkey. International Journal of Economics and Financial Issues. 7(2), 574-584.
Yigermal, M. (2017). The Determinants of Private Commercial Banks Profitability: In the Case of Selected Ethiopian Private Banks. International Journal of Economic Behavior and Organization. 5(1), 25-35.
Wasiuzzaman, S., & Tarmizi, H. (2010). Profitability of Islamic Banks in Malaysia: An Empirical Analysis. Journal of Islamic Economics, Banking and Finance. 6(4), 51-68.
Wambari, K., & Mwangi, M. (2017). Effect of interest rates on the financial performance of commercial banks in Kenya. International Journal of Finance and Accounting. 2(1), 19-35.
Published
2020-03-05
How to Cite
Al-Harbi, A. (2020). Banks’ Profitability in an Islamized Financial System: Comparative Study between Iran and Sudan. International Journal of Islamic Banking and Finance Research, 4(1), 8-14. https://doi.org/10.46281/ijibfr.v4i1.498
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2020 Ahmad Al-Harbi
This work is licensed under a Creative Commons Attribution 4.0 International License.
