The Internal Determinants of the Profitability of Jordanian Islamic Banks

Abstract

This study examined the internal determinants of the profitability of Jordanian Islamic banks (Jordan Islamic Bank and International Islamic Arab Bank), using annual data covering 1997 to 2019. ARDL econometric method is used to estimate each bank model separately. Estimation results showed a relationship between the bank’s size and capital adequacy and the profitability of the two banks. There is also a positive relationship between asset management and the profitability of the Jordan Islamic Bank, the deposit ratio, and the profitability of the Islamic International Arab Bank. However, there is a negative relationship between the assets’ quality and operating efficiency and the profitability of the Jordanian Islamic banks. The study recommends that Islamic banks must work on increasing their profitability by increasing the size of their assets and the capital adequacy ratio and raising the quality of their assets by paying more attention to the way their clients are selected to reduce the default risk.