An Empirical Investigation of the Profitability of Islamic Banks in Bangladesh

Abstract

The paper aims at investigating the effect of bank specific and macroeconomic determinants on profitability of seven Islamic banks in Bangladesh during 2003 to 2013. The study uses pool regression model and system GMM in the investigation process. The study considers ROAA, ROAE and NIM while ROAA is found more preferred profitability indicator for the Islamic banks in Bangladesh. The study reveals a robust negative effect of credit risk, loan ratio, cost efficiency and capitalization on profitability while robust positive effect bank size on profitability of the Islamic banks in Bangladesh. The study further finds that implementation of Basel II accord does not increase profitability of the Islamic bank in Bangladesh. The study suggests some significant policy recommendation in order to improve the profitability of the Islamic banks in Bangladesh.