Profitability and persistency in the service industry: the case of QISMUT+3

Abstract

The aim of this study is to evaluate profitability determinants and profit persistency of Islamic and conventional banks operating in top nine Islamic Finance oriented-countries that are named as QISMUT+3 (Qatar, Indonesia, Saudi Arabia, Malaysia, UAE, Turkey, Bahrain, Kuwait and Pakistan). For this purpose, it uses bank specific, market structure, and macroeconomic variables that are utilized from Orbis Bank Focus and World Bank database. To capture endogeneity problem and unobserved heterogeneity, dynamic approach is used by employing system GMM estimation. The major findings of the study show higher profit persistency of Islamic banks (IBs) than conventional banks (CBs). The results also suggest that profitability determinants of IBs and CBs are different. Concerning the risk behavior, bank capitalization and credit risk variables are more important for CBs. Crisis results attribute better resilience to Islamic banks.