Factors Influencing the Profitability of Fully-Fledged Islamic Banks in Pakistan

• Main Author: Javaria, Kiran
• Format: Thesis
• Language: English; English
• Published: 2022
• Online Access: http://ur.aeu.edu.my/1022/1/Kiran%20Javaria%20-%20Final%20Thesis.pdf; http://ur.aeu.edu.my/1022/2/Kiran%20Javaria%20-%20Final%20Thesis-1-24.pdf; http://ur.aeu.edu.my/1022/; https://online.fliphtml5.com/sppgg/qgkv/?1670309219496

Islamic banks are founded on principles that constitute the guidelines governing any Islamic economic or financial dealing. There has been tremendous growth in the Islamic banking sector especially in Islamic countries with regions like GCC countries and Malaysia leading the way. The situation in the Islamic Republic of Pakistan has been quite different where there has been a steady decline in the total number of Islamic banks and their profits. It is important to identify the reason behind decline and failure of the Pakistani fully fledged Islamic banking sector. Therefore, this study purpose is to highlights the main reasons for the decline of Islamic banking profitability in Pakistan. According to SBP, Islamic Bank Bulletin 2018, there are currently four fully fledged Islamic banks operating with 14.4% market share of Pakistan's banking industry. This study encompass a period of twelve years (2007 to 2018) which shows a gradual decline in the total number of fully fledged Islamic banks in Pakistan and gradually in the reduction of their profits. This study contributes by analyzing both internal and external factors ((Back specific/Internal, Environmental/Macroeconomic and External Factors) which have led to the decline in the profitability of fully fledged Islamic banks. The study utilizes mixed method approach using the triangulation technique for the collection and analysis of data. Primary data was gathered from 203 senior Islamic banks managers and data was collected from ten major cities of Pakistan. Conclusively finding reveal that internal/bank specific, external factors have significant and positive impact on Islamic bank‘s profitability while Macroeconomic factors have limited contribution in Profitability generation. This is clearly evident from the empirical findings that if these factors are not addressed by the banks management and State Bank of Pakistan (SBP), in the near future there would be a further decline in the number of Islamic banks operating in Pakistan. Therefore, this study highlights and addresses the main causes for the decline of Pakistani Islamic banking sector. The study provides workable policy recommendations to be followed both by the senior banks management as well as the regulatory body (SBP). This study is important as it clearly emphasizes the core weakness within the Islamic banking sector of Pakistan and provides practical recommendations and suggestions to save this declining sector.