




































 

Indian Journal of Finance and Banking 

 Vol. 4, No. 3; 2020 

                                       ISSN 2574-6081   E-ISSN 2574-609X 

Published by CRIBFB, USA 

 

26 

 

PROFITABILITY OF ISLAMIC BANKS: A PANEL DATA 

ANALYSIS 
 

Amine Bakkeri 

Faculty of Economics and Management of Sfax  

University of Sfax, Tunisia 

E-mail: bakkeriamine@gmail.com 

 

Abdelhakim Ben Ali 

Faculty of Law, Economics and Management of Jendouba 

 University of Jendouba, Tunisia 

E-mail:benali.abdelhakim@gmail.com 

 

 

ABSTRACT 

This article aims to examine the impact of internal and external factors on the profitability of 30 

Islamic banks operating in the Middle East and North Africa over a period from 2005 till 2018. 

We use the OLS method according to Panel data. Empirical results indicate that the quality of 

management, liquidity, and capitalization, quality of services, the presence of women and the 

competence of staff are significant determinants of profitability. The other determinants 

including diversification, size and inflation have no significant effect on the Islamic banks' 

profitability. 

 

Keywords: Profitability, Islamic banks, Panel data, Middle East, North Africa. 

 

JEL Classification Codes: G21, G24, C33, D02. 

 

INTRODUCTION 

Islamic finance is currently enjoying remarkable success after its strong resistance to loss failures 

following the outbreak of the supreme crisis in 2008. This phenomenon appears to be a real 

alternative to classical finance (Ahmed, 2010). It revolves around a philosophy that is specific to 

it and allows meeting and satisfying the needs of customers via its legitimacy drawn from the 

principles imposed by Sharia by sharing the risks and the profits with the customers. Islamic 

finance, which offers Sharia-compatible products, is attracting the attention of investors, 

specialists in the field, and policy makers (Ougoujil & Rigar, 2018). 

This study is part of the works dealing with the question related to the determinants of 

profitability within Islamic banks, the objective of which concerns the impact of external and 

internal factors' impact on the Islamic banks' profitability. Unlike previous research, our work 

proposes and integrates new factors that affect the bank profitability, in particular the service's 

quality, the women's presence, and the competence of staff. 

To answer our research question, this paper is distributed as follows: the section will 

present the literature review and the research hypotheses. In the second part, we present the 

mailto:amine@gmail.com
mailto:benali.abdelhakim@gmail.com
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research methodology, the results and their interpretations. We will end with the conclusion and 

the limits of our research. 

 

BACKGROUND AND HYPOTHESES 
Theoretical and empirical contributions in the literature have shown that the profitability of 

Islamic or conventional banks is assessed by criteria related to the internal management of the 

banks as well as the environmental factors in which these institutions operate (Jadoon et al., 

2019; Babalola et al., 2012; Sufian, 2010; Wasiuzzaman et al., 2013). The latter use the use of a 

variety of external and internal factors that may affect the Islamic banks' profitability. 

 

The quality of banking management 

Abduh et al. (2013) studied the determinants of profitability in Malaysia. They have shown that 

the development of financial markets, the size of the bank, market concentration and inflation 

have a positive and significant effect on bank profitability.The latter are called upon to adopt a 

sound management of cost by exploiting to the best of their resources. The effect of this variable 

is ambiguous in the literature. Indeed, Sufian (2010) found that the ratio of total overheads to 

total assets has a negative and significant impact on the Malaysian Islamic banks' profitability. 

Hassan et al. (2009) found that this ratio has no significant impact on bank profitability. Abduh 

et al. (2014) indicate a negative and significant effect between banking management quality and 

the Islamic banks' profitability. Wasiuzzaman et al.(2014) showed that the capital adequacy ratio 

and asset quality have a negative and significant effect and that liquidity and operational 

efficiency, inflation and gross domestic product have a significant and positive effect on bank 

profitability. Similarly, Khan and Ijaz (2014) assess the factors affecting the profitability of 

Islamic banks during the period 2007 to 2014. The results indicate that capital adequacy, 

operational efficiency, quality of management and income gross domestic have a significant 

effect, while inflation has a negative effect on profitability. 

 

H1: Quality of bank management has a positive and significant effect on the Islamic banks' 

profitability. 

 

Liquidity  

Eljelly and Elobeed (2013) have shown that only factors such as cost, liquidity and bank size 

have a positive and significant impact on performance. External factors are insignificant 

determinants. 

Daoud et al. (2016) assessed the banks' performance using the ratio method. The results 

indicate that capital adequacy, liquidity, operational efficiency are significant ratios of 

profitability. Credit risk is not a significant variable. Regarding external factors, gross domestic 

product displays stimulating effects on the Islamic banks' profitability.  

Islamic financial institutions face a major constraint on liquidity, which is justified by the 

absence of an interbank market on which these institutions can manage their liquidity. The 

solution to this problem lies in the development and standardization of instruments to manage the 

liquidity of Islamic financial institutions.The majority of studies that have examined the Islamic 

banks' profitability suggest that Islamic banks should be more liquid and therefore it will be less 

exposed to liquidity risk. Srairi (2009) reveal a positive effect between liquidity and Islamic 

Banks' profitability (Samad, 2004). 

 



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H2: Liquidity has a negative and significant effect on the profitability of Islamic banks. 

 

Capital-adequacy  

Sufian (2010) studied new empirical evidence on the factors that precise the banking sector's 

profitability in the Republic of Korea over the period 1994-1996. Empirical results show that 

banks in the Republic of Korea with high capitalization levels are tending to have higher 

profitability levels. However, the impact of credit is always negative under macroeconomic and 

financial conditions (Haron, 1996). At the same time, the effect of the economic cycle on bank 

profitability is mixed. On the one hand, inflation has a pro-cyclical impact, while the gross 

domestic product has a counter-cyclical influence on the profitability of banks. Dodi et al.(2018) 

have shown that capital adequacy, credit risk and asset size have a significant and negative effect 

on bank profitability, while liquidity has a positive and significant impact on the banks' 

profitability. However, only external factors have a significant and positive effect, while gross 

domestic product has a negative and significant effect on the profitability of banks. Hanif et al. 

(2012) and AlTamimi et al. (2011) compared profitability in conventional and Islamic banks. the 

results indicate that the capital adequacy ratio is a significant factor in profitability, size has no 

effect and operational efficiency has a negative impact on bank profitability (Munir, 2017). 

Islamic banks must have solid capital to provide them with additional strength to resist 

the financial crises on one hand, and on the other hand to provide security for depositors' funds 

during unstable macroeconomic conditions. A high level of equity reflects in fact the degree of 

solvency of Islamic banks and their capacity to meet their commitments (Zarrouk et al., 2016). 

 

H3: Capital adequacy has a positive and significant effect on the profitability of Islamic banks. 

 

Quality of service 

The quality of services (customer satisfaction or customer retention) is one of the most important 

elements at present in the face of increasing competition the quality of service reflects a 

relationship of trust with customers (Aisyah, 2018;  Ali and Raza, 2017). 

This relationship reflects in the framework of the priorities of banks to protect their brand 

image, their reputation which leads to the valuation of their performance (Supiyadi et al., 

2019). By adopting strategies and techniques, banks must offer highly qualified and 

distinguished services to ensure customer loyalty. As banking services are now similar, there are 

some small parts that make the difference to the clients' ability to answer their queries and 

provide the services needed in a timely and high-quality manner. Based on these findings, we 

test the hypothesis that: 

 

H4: Quality of service has a positive and significant effect on the Islamic banks' profitability. 

 

Women's presence 

In the Middle East and North Africa region, the majority of countries are adopting a proactive 

policy in favor of women’s rights and the elimination of gender inequalities. The gender thus 

involves adopting and implementing innovative equity measures as well as human resource 

management based on criteria of competence and performance and on the principles of social 

justice and equality (Sinha, 2020). General guidelines on integrating gender and diversity in 

human resources management have several advantages. The institutions are more specifically 

responsible for developing strategies on gender mainstreaming and for coordinating and 

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supervising the implementation of gender-sensitive human resources and mechanisms and 

management policies. More specifically, the institutions are responsible for developing strategies 

on gender mainstreaming and for coordinating and overseeing the implementation of gender-

sensitive human resource management systems and mechanisms (Alazzani,2019). 

Establishments, mainly banks, insurance companies and private companies, give importance to 

the presence of women in the workforce. However, the appreciation of the role of women 

reflects the adoption of a culture of gender diversity, which enshrines the principle of equality 

and equal opportunities between the sexes. With intense competition, institutions seek to attract 

talent of all genders to ensure continuity and efficiency. 

 

H5: Presence of women has a positive and significant effect on the Islamic banks' profitability. 

 

Market share  

The literature indicates that the best performing banks are associated with banks with the lowest 

market share; (Sufian & Habibullah, 2010; Abduh et al., 2014). In some cases, continued 

expansion of market share could lead to additional costs and thus lead to inefficiencies. Sufian 

(2009) deduced a negative relationship between bank profitability and market share (Petria et al., 

2015). Abdel-Hameed (2003) analyzed the effect of bank characteristics and the general 

financial environment on the Islamic banks' performance. His study has shown that by 

controlling the macroeconomic environment, the financial structure of the market and taxation 

negatively affect profitability. Favorable macroeconomic conditions have a positive and 

significant impact on the profitability of Islamic banks. Abduh et al. (2013) studied the 

determinants of profitability in Malaysia and showed that the development of financial markets, 

bank size, market concentration and inflation have a positive and significant effect on 

profitability banking. 

 

H6: Market share has a positive and significant effect on the Islamic banks' profitability. 

 

Diversification 

The diversification reduces risk and helps minimize the risks they face Islamic banks by building 

a diversified portfolio of holdings. It can be a source of profit for Islamic financial institutions as 

these banks offer a diverse range of products and services or a source of costs. Petria et al. (2015) 

tested the internal and external determinants of the profitability of Member States during the 

period 2004-2011. The results of their study have shown that capital adequacy, size, 

diversification and gross domestic product have a positive and significant impact on the 

profitability of European banks and that liquidity, credit risk and inflation negatively affect 

performance banking. 

On the one hand, diversification can be a source of cost for newly created banks, which 

can weigh heavily on the bank's situation especially during critical moments. For a bank whose 

strategies are clear, transparency in investment matters with the presence of an audit committee 

and a supervisory board, all these arguments make diversification a source of profit. Diversity of 

products, differentiation at the service level helps the bank to diversify to take advantage of it. 

 

H7: Diversification has a negative and significant effect on the Islamic banks' profitability. 

 

 

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Inflation 

Inflation is widely used in the literature as an external factor that can affect the Islamic banks' 

profitability. Abduh et al. (2014) analyzed the factors of Islamic banks' profitability over the 

period 2006-2010 and showed that operational efficiency, inflation have a positive and 

significant impact on the performance measured by ROA. Using ROE as a measure of 

profitability, they have shown that operational efficiency and inflation have a negative impact 

while gross domestic product has a positive effect on the performance of Islamic banks.  

In this sense, Sufian et al. (2009) have shown that inflation has a negative relationship 

with the banks' profitability in Bangladesh. Others like Abduh et al. (2014), Srairi (2009) 

deduced complex results to see ambiguous. 

 

H8: Inflation has a positive and significant effect on the Islamic banks' profitability. 

 

The size of the bank 
This variable is used in several previous works, (Sufian 2010; Khrawish, 2011). Size informs us 

about the quality of control for cost differences and the ability to diversify. Dodi et al. (2018) 

examined the effect of factors that contribute to the Islamic banks' profitability in Indonesia over 

the period 2008 - 2017. The results of the study revealed that Size has a positive effect on ROA 

and ROE while Capital, Credit Risk and Liquidity had a negative effect on the profitability of the 

Islamic bank in Indonesia. Likewise, inflation had a positive effect while gross domestic product 

had no significant effect on the profitability of Islamic banks 

Sufian (2010) and Khrawish (2011) argued that large banks should have more economies 

of scale and reduced the cost of collecting and processing information. Abduh et al. (2014) 

indicate a non-significant effect of size on the Islamic banks' profitability. Wasiuzzaman (2010) 

indicates a negative but insignificant relationship between the size of the bank on the 

profitability.  

 

The staff competence 

Achieving a high level of profitability is conditioned by requirements, mainly the degree of 

professionalism of the employed workforce. The bank must devote a portion of its profits to the 

training and remuneration of the team or the employees employed. The lack of competent and 

qualified personnel exposes the Islamic bank to risks. Institutions tend to give considerable 

importance to the training and specialization of its staff employed and especially in the field of 

the Islamic jurisprudence. The majority of banks give importance to the training of executives. 

The allocation of costs or costs by increasing the volume of services or gains in terms of 

profitability results from a specialized workforce. In addition, giving a place for the training of 

the managers, this leads to increase the professional capacities and to create a good climate for 

the conduct of the business of the bank (Supiyadi et al., 2019). The institution's profitability 

therefore increases as a result of policies consistent with the quality of the workforce and a staff 

competence. 

 

RESEARCH METHODOLOGY 

Sample and Data 

Our objective is to study the effect of internal and external factors on the profitability of a sample 

of 30 Islamic banks operating in the Middle East and North Africa over a period from 2005 to 



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2018. Or a number of observation equal to 420. All our data are extracted from annual reports 

published by Islamic banks, data from the World Bank and the bank-scope database. 

 

Research model and presentation of variables 

In line with the work of Short (1979), our model is a multiple linear regression. Such a linear 

analysis allows more logical and more robust results. Our model takes the following form: 

Profitability = α + ∑ βk Xit + εit 

with:  

 

Profitability of Islamic banking measured by the return on ROA Assets,  

 

Xit represents the dependent variables. 

 

So, our model is as follows: 

 

ROAit = α + β1 QGBit + β2 LIQit + β3 CBit + β4 QSit + β5 GENDERit + β6 MSHit + β7 DIVit 

+ β8 INFit + β9 SIZEit + β10 ST-COMit + εit 

 

Dependent Variable 

ROAit: Return on assets from bank i to instant t. It is expressed as Net Income / Total Assets. 

 

Independent variables 

GGBit: Quality of banking services from bank i to instant t measured by total fees / total assets. 

 

LIQit: Liquidity of the bank from bank i to instant t is measured by the ratio of cash / Total 

Assets. 

 

CBit: capitalization from bank i to instant t measured by book value of equity / Total Assets. 

 

QSit: Quality of services from banks i to instant t defined by evolution of the number of 

customers. It measured by difference in the number of customers in year t and in year t-1 divided 

by the number of customers in year t (number of customers in year t - number of customers in 

year t-1) / number of customers in year t. 

 

GENDERit: The presences of women in human resources from bank i to instant t measured by 

the percentage of the number of women in relation to the total staff. 

 

MSHit: Market share from bank i to instant t measured by the natural logarithm of Total Deposit. 

 

DIVit: Diversification from bank i to instant t calculated by Non-interest bearing income / Total 

Assets. 

 

INFit: Inflation rate calculated by the consumer price index. 

 

Variables of Control 

SIZEit: Size from bank i to instant t measured by the natural logarithm of Total Assets. 



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ST-COMit: staff skills from bank i to instant t a binary variable which takes the value of the unit 

if the bank carries out staff training, 0 if not. 

 

RESULTS AND INTERPRETATIONS 

 

Hausman specification test 

Table 1. Hausman specification test  

 

 Coefficients  sqrt(diag(V_b-

V_B))  (b) (B) (b-B) S.E. 

 FE RE Difference  

QGB 0,7456 0,6543 0,0913 0,0002 

LIQ 1,3509 0,9844 0,3665 0,1008 

CB -1,3456 -1,0765 -0,2691 0.81896 

QS 0,8348 0,9653 -0,1305 0,0056 

GENDER 1,3654 0,7298 0,6356 0.01026 

MSH -0,6072 0,8163 -1,4235 0,0001 

DIV 1,0134 3,0546 -2,0412 0,3921 

INF 0,0115 1,0056 -0,9941 0.0046 

SIZE -0,0875 0,0778 -0,1653 0.1690 

ST- COM 0,9234 2,4571 -1,5337 0,0034 

b = consistent under Ho and Ha; obtained from  xtlogit 

B = inconsistent under Ha, efficient under Ho; obtained from  xtlogit 

chi2(10) = (b-B)'[(V_b-V_B)^(-1)](b-B)  = 8.94 

Prob>chi2 = 0.0131 

 

Hausman's test will suggest the use of one of two estimation methods (estimation 

methods with random or fixed effects). This test makes it possible to determine if the coefficients 

of the two estimators are statistically different. The idea is that under the null hypothesis of 

independence between the errors and the explanatory variables, the two estimators are unbiased, 

so the coefficients should differ little. The result follows a law χ2 with k-1 degree of freedom. 

The comparison of the tabulated value of χ2 (k) at 95% with that calculated from the Hausman 

test can lead us to specify the estimate in fixed or random effect. This test provides us with an 

idea of the nature of fixed or random effects. The table indicates a probability lower than 10% 

which implies that the effects are fixed in our study. 

 

Descriptive statistics and Pearson correlations 

Table 2. Descriptive statistics 

 

Variables Min Max Mean Std. Dev. 

ROA - 0.115 0 .188 0.037 2.076 
QGB 0 0.724 0.343 0.243 

LIQ 0 0.623 0.187 0.081 
CB 0.083 0.656 0.545 1.279 



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MSH 3.01 5.152 2.065 0.097 

QS 0.17 0.336 0.211 0.043 
GENDER 0.12 0.448 0.324 0.115 

DIV -3.167 5.019 0.933 0.615 
INF 3.452 8.589 5.016 0.407 

ZIZE 1.058 9.483 6.562 1.045 
ST-COM 0 1 0.681 0.012 

 

The table presents the descriptive statistics of the determining factors of the profitability 

of Islamic banks over the period from 2005 to 2018. The ROA has an average value of 3.781% 

and varies between -0.1156 and 0.1865 with a standard deviation of 2.0746. This ratio tells us 

about the overall profitability of Islamic banks. 

The capitalization varies between 0.083 and 0.656 and registers an average of 0.545. This 

implies that Islamic banks are strongly solid and capitalized in the face of financial shocks. The 

quality of banking management registers an average value of 0.34 and scales between 0 and 

0.724 with a standard deviation of 1.2434. This implies that Islamic banks during the study 

period suffer from a lack of efficiency in terms of quality of management. Liquidity is on 

average 18,726% and varies between 0 and 7,893. This tells us that liquidity is important in 

Islamic banks despite the disruption of economic conditions. Islamic bank has a low market 

share. On average, this ratio registers a value of 2.065 and ranges between 3.01 and 5.15. This 

ratio provides us with an idea of its role in boosting the economy. 

The quality of service reaches an average value of 21% and varies between 17 and 33%. 

An Islamic bank attaches importance to customer retention and adopts customer communication 

strategies. 

The presence of the woman or the sexual gender records an average of 32% and balances 

between 12 and 44% of the employed workforce. For political and cultural considerations, the 

presence of women is of considerable importance and gives an idea of the degree of openness to 

female skills and their weight in Islamic banks. This factor allows for more creativity and 

productivity. Diversification averages 0.945 and reaches a maximum of 5.019. Islamic banks 

seek to diversify to improve their productivity and profitability. This requires adequate means 

and mechanisms to ensure this objective. Inflation has an average value of 5.016 and ranges 

between 3.452 and 12.543. The unstable macroeconomic conditions caused by the spread of 

corruption, the supreme crisis and the events of the spring in certain Arab countries weighed 

heavily on their economies. The size of the Islamic banks registers an average value of 6.562 and 

varies between 1.058 and 9.483. Large banks are more efficient than small banks. 

Staff competence ranges from 0 to 1, an average of 68%. Islamic banks by attracting 

qualified personnel commit to training them by various means to achieve objectives related to 

productivity, survival, competitiveness and profitability.  

 

Table 3. Pearson correlation matrix 

 

 

R
O

A
 

Q
G

B
 

L
IQ

 

C
B

 

M
S

H
 

Q
S

 

G
E

N
D

E
R

 

D
IV

 

IN
F

 

Z
IZ

E
 

S
T

-

C
O

M
 

ROA 1.000           

QGB 0.083 1.00          

LIQ 0.043 0.671 1.00         



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CB 0.324 -0.151 0.179 1.00        

MSH -0.351 0.674 -0.039 0.538 1.00       

QS -0.337 -0.476 -0571 -0.389 0.045 1.00      

GEND

ER 

0.342 0.376 0.095 0.034 0.066 0.041 1.00     

DIV -0.506 0.023 -0.275 -0.093 0.527 0.115 -0.073 1.000    

INF 0.198 0.059 -0.011 0.043 0.381 -

0.056 

0.612 -0.107 1.00   

SIZE 0.651 0.561 0.042 -0.562 -

0.018 

0.623 -0.143 0.301 0.106 1.00  

ST-

COM 

-0.483 0.642 -0.007 -0.471 0.067

3 

0.394 0.223 0.573 -0.431 0.005 1.00 

 

The aim of the Pearson correlation matrix table is to detect whether there is a 

multicollinearity problem between the variables introduced into our model. In this sense, 

Anderson and al (1990) have shown that any correlation coefficient greater than 0.7 indicates a 

potential problem. Ben Ali, (2017) sets a critical value equal to 0.7 from which a serious co-

linearity problem between the independent variables is pronounced.  

The majority of variables are weakly correlated with each other. Our results indicate that 

the market share, the quality of service, the diversification and the skill of the workforce 

employed are negatively correlated with the return on ROA Assets. The quality of banking, 

liquidity, capitalization, gender, inflation and size seem to be positively correlated with ROA 

profitability. The correlation between the variables is generally accepted and poses no problem. 

 

 Econometric estimation and interpretations of the results  

Table 4.Econometric estimation 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

(*,**, *** : The coefficients are significant at the 10%, 5% and 1% thresholds, respectively) 

 

The quality of bank management has a positive and significant impact on profitability (P 

˃ | Z | = 0.00). This implies that Islamic banks are efficient in the conduct of their operations and 

the management of their assets and means the ability of revenues to cover costs, which 

contributes to improving their profitability. 

Variables coef Z P>|z| 

Constant -0.176 1.762 0.081* 

QGB 1.824 4.903 0.000*** 

LIQ -0.169 -1.290 0.002** 

CB 1.194 2.528 0.000*** 

MSH 0.020 1.667 0.208 (n/s) 

QS 2.520 1.076 0.012** 

Gender 0.207 2.471 0.004** 

DIV -0.017 -0.84 0.031** 

INF 0.012 1.323 0.188 (n/s) 

ZIZE -0.156 1.312 0.243n/s 

ST-COM 0.003 3.258 0.000*** 



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Liquidity has a negative and significant impact on profitability (P ˃ | Z | = 0.002). Islamic 

banks are subject to a lack of liquidity. They must have a level of liquid assets to meet their 

short-term commitments. This is justified by the absence of a secondary market on which banks 

can refinance in case of need. In this sense, they must constitute a reserve to protect themselves 

against a situation of illiquidity. 

Capital adequacy has a positive and significant impact on profitability (P ˃ | Z | = 0.00). 

This result reflects the ability of Islamic banks to withstand loss shocks at critical moments. The 

higher this ratio, the stronger the strength of Islamic banks against shocks. 

Market share has a positive but not significant impact on profitability (P ˃ | Z | = 0.208). 

Islamic banks seem to occupy a market share considered to be low. Generally, the best 

performing banks have a high market share. 

The quality of services has a positive and significant impact on profitability (P ˃ | Z | = 

0.012). This means that achieving high quality service means putting in place reliable strategies 

in order to improve customer confidence in the services offered. This allows the creation of an 

environment of innovation and creativity and more quality. Islamic banks have a vested interest 

in strengthening their communication strategy with their customers, which also contributes to 

improving their reputation. 

The gender has a positive and significant impact on profitability (P ˃ | Z | = 0.004). The 

presence of women among human resources is a favorable factor in improving the profitability of 

Islamic banks. Indeed, the mixed environment creates competition and motivation. In addition to 

the psychological effect, availability and patience, women have the mental and behavioral 

capacities to perform all the functions assigned to them, which improves the profitability of BI. 

In the Middle East and North Africa region, the majority of countries are adopting a proactive 

policy in favor of women’s rights and the elimination of gender inequalities. The gender thus 

involves adopting and implementing innovative equity measures as well as human resources 

management based on skills and performance criteria. 

Diversification has a negative and significant impact on profitability (P ˃ | Z | = 0.031). 

This result is explained by the fact that the most diversified banks suffer a high degree of risk. 

Islamic banks do not have enough log experience to engage in diversification which can be a 

source of cost. 

Inflation has a positive but not significant impact on profitability (P ˃ | Z | = 0.188). 

Inflation depends on expectations. Islamic banks take a proactive view of the real economy that 

fights inflation. 

Size has a negative but not significant impact on profitability (P ˃ | Z | = 0.243). The sign 

of this variable is ambiguous in the literature. Generally, the larger the size of the banks, the 

more experience they have in promoting economies of scale and thus improving competitiveness 

and performance. 

Staff competence has a positive and significant impact on profitability (P ˃ | Z | = 0.000). 

This result implies that Islamic banks give importance to staff training in order to increase 

competitiveness and profitability. Otherwise, the lack of qualified and competent personnel 

exposes the Islamic bank to risks. Islamic banks are responsible for developing human capital, 

which manifests itself in individual and collective know-how. 

 

CONCLUSION 
The Islamic finance industry is growing in importance and attracting the attention of researchers. 

This phenomenon which draws its legitimacy from the precepts of Sharia prohibits usury or even 



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36 

 

"Riba" and adopts a sharing of risks and profits with customers and suppliers of Sharia-

compliant products. This study identifies the effect of internal and external factors on the Islamic 

banks' profitability operating in the Middle East and North Africa region from 2004 till 2018. 

The results show that the quality of bank management, capitalization, liquidity, quality of 

services, the presence of women and inflation are significant determinants of bank profitability. 

Creating an environment for a virtuous cycle of entrepreneurship, innovation and 

economic growth and sustainable development depends on macroeconomic conditions and the 

management strategies adopted by Islamic banks to be able to improve their profitability. 

Our study suffers from some limitations related to the heterogeneity of the data as well as 

the size of the sample considered reduced. With the addition of other factors related to audit and 

governance, our study can lead to more reliable and robust results. 

 

REFERENCES 

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