Are Islamic Banks Resilient to Crises: New Evidence from the COVID-19 Pandemic Case of North African Countries

Islamic finance has gained increasing global investor attention, marked by a rise in assets in 2019. Despite market volatility from the COVID-19 outbreak, interest continues to grow, driven by its expansion into new geographic markets and digital transformation, which has enhanced accessibility to Islamic financial products. Hence, the purpose of this study is to explore the impacts of primary macroeconomic variables including GDP growth rates, national debt levels, consumer price fluctuations, lending rate shifts, foreign capital inflows, and external account balances on the performance of Islamic banks, measured by return on assets and return on equity. By applying the fixed-effects panel estimations, the study examines Northeast African countries, Algeria, Morocco, and Tunisia, over the period 2017–2022, taking into consideration the instability introduced by the pandemic. The findings indicate that most of these variables align positively with Islamic bank profitability, while large external financing inflows and chronic balance-of-payments shortfalls tend to depress returns, the study concluded an overreliance on outside funding. The study suggests that policymakers should consider targeted fiscal and monetary support measures and channel international investment through Islamic banking institutions to sustain and enhance their profitability.