The Impact of the Financial Crisis on the Islamic Banks Profitability - Evidence from GCC

Abstract

Using pooled data for 24 Islamic banks operating in Bahrain, Kuwait, Qatar, Saudi Arabia and UAE over the 2005-2012 period the current study examines empirically the impact of the global financial crisis on the Islamic banks’ profitability. The study finds that the financial crisis does not have significant impact on Islamic banks profitability. Favorable macro-economic conditions, bank size and equity capital are important factors in increasing Islamic banks’ profitability. Furthermore Increasing owners’ equity decreased the impact of financial crisis on Islamic banks profitability. On the other hand, the impact of the financial crisis on Islamic banks’ profitability increase with increasing banks total assets, liquidity and overhead expenses. The study recommends increasing both Islamic banks’ size and equity capital in addition to reducing their overhead expenses and liquidity in order to increase their profitability and decrease the impact of financial crisis in their performances.