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Socioeconomic Development and Its Effect on Performance of Islamic Banks: Dynamic Panel Approaches

Author

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  • Chowdhury, M. Ashraful Ferdous
  • Haque, M. Mahmudul
  • Alhabshi, Syed Othman
  • Masih, Abul Mansur M.

Abstract

Islamic banks are highly incorporated with social issues because of their rules and regulations. Profit not only depends on its own return and investment but also on trust, moral issues which may be more related to banking profitability. To test these gaps, this chapter attempts to investigate the socioeconomic factors along with bank-specific factors of global Islamic banks using dynamic GMM and Quantile regression. The dataset used in this study involves 55 full-fledged Islamic Banks from 24 countries across the globe. The results suggest that Return on Assets (ROA) is significantly positive to bank-specific factors such as credit risk has and statistically negative to cost-to-income ratio. It is also suggested that the relationship between risk and return is heterogeneous or dissimilar across different quantiles. Findings of the study tend to unravel that the socioeconomic factors especially political stability and investment freedom have positive and significant relation to the Islamic bank performance.

Suggested Citation

  • Chowdhury, M. Ashraful Ferdous & Haque, M. Mahmudul & Alhabshi, Syed Othman & Masih, Abul Mansur M., 2016. "Socioeconomic Development and Its Effect on Performance of Islamic Banks: Dynamic Panel Approaches," MPRA Paper 71888, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:71888
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    More about this item

    Keywords

    ROA – Socioeconomic factors – Credit risk – Dynamic GMM – Quantile regression;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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