Determinants Affecting the Profitability of Islamic Banks: Evidence from Pakistan

In this article we find the main factors/determinants that affect the profitability of Islamic bank in Pakistan for the period of 2007 to 2014. These factors are broadly classified into three big groups. That is, internal factors, industry specific and external factors. Internal factors are Bank specific, market share is industry specific whereas external factors are Macroeconomics. Return on equity (ROE) and Return on assets (ROA) are used to measure the profitability of Islamic banks. Internal variables: Bank size, deposits and financing/investment industry specific variable: Market Share and External Factor: Inflation and GDP are the measures that are used to check either these variables have any impact over the ROA and ROE as well as the profitability of Islamic Bank of Pakistan. Linear Regression test is used to check the level of significance and relationship of variables with ROA and ROE as well as profitability.