Determinants of islamic banking profitability: roles played by internal and external banking factors.

Due to the uncertainties and slowdown in the global economy, Islamic banking is facing challenges that will affect its performance and profitability. Poor performances include high level of credit risk, poor quality loans, limited or inadequate capitalization and operational efficiencies will influence the profit of banks. The idea of this paper is to examine how internal and external factors affect the profitability of Islamic banks. This will be seen on how performance through bank size, asset quality, GDP, inflation and money supply attempt to address the banks’ profitability. 11 samples of banks with six years financial data are chosen to be analyzed in this research. The results are obtained from applying the panel data analysis. It is expected that the findings of this study will show that the variety of internal and external factors will lead to banks profitability. If the Islamic banks fully understand and able to determine the strength factors, it will enhance the institutions’ profitability. Therefore, policy makers, financial analyst and investors may benefit from this research as it could be a guideline to them in analyzing the factors affecting the success of Islamic banks. Thus, this may contribute to a higher growth rate for the banks that are involved.