Unveiling Profitability Drivers in ASEAN Islamic Banking: A Panel Data Analysis

Ibnu Muttaqin

Abstract


This study examines the determinants of profitability in Islamic banking across five Association of Southeast Asian Nations (ASEAN) countries, including Indonesia, Malaysia, Brunei Darussalam, the Philippines, and Thailand, from 2018 to 2022. Using panel data regression, the study examines both Return on Assets (ROA) and Return on Equity (ROE) as measures of profitability. The population consists of all Islamic banks operating in the ASEAN region. Through purposive sampling, the study selected 127 data observations from banks with complete and consistent financial data. The models were estimated using Fixed Effect Models (FEM) with robust standard errors to correct for heteroskedasticity. The findings reveal that efficiency, Market Concentration (HHI), and inflation consistently have a positive and significant impact on both ROA and ROE. Financing to Deposit Ratio (FDR) positively affects only ROE, while Gross Domestic Product (GDP) unexpectedly shows a negative relationship with ROE. Other variables such as bank size, market share, and the Sharia Supervisory Board (SSB) are statistically insignificant. These results suggest that internal efficiency and market structure are more critical to Islamic bank profitability than macroeconomic scale or governance mechanisms. This study fills the empirical gap in the literature by offering comparative insight into Islamic bank performance across the ASEAN region.

Keywords


Islamic Bank; Profitability; Sharia Supervisory Board; Bank-specific; Macroeconomic

Full Text:

PDF

References


Abaidoo, R., & Anyigba, H. (2020). Bank performance variability and strands of inflationary conditions. European Journal of Management and Business Economics, 29(3), 235–253. https://doi.org/10.1108/EJMBE-09-2018-0100

Abbas, A., Triani, N., Rayyani, W. O., & Muchran, M. (2022). Earnings growth, marketability and the role of Islamic financial literacy and inclusion in Indonesia. Journal of Islamic Accounting and Business Research, ahead-of-print(ahead-of-print). https://doi.org/10.1108/JIABR-12-2021-0322

Abou-El-Sood, H., & Shahin, R. (2023). Bank competition, regulatory capital, and risk taking: International evidence. Managerial Finance, 49(10), 1614–1640. https://doi.org/10.1108/MF-06-2022-0277

ASEAN Secretariat. (2023, Desember). ASEAN Statistical Yearbook 2023. Jakarta: ASEAN Secretariat. https://asean.org/book/asean-statistical-yearbook-2023/

Bain, J. S. (1951). Relation of Profit Rate to Industry Concentration: American Manufacturing 1936-1940. The Quarterly Journal of Economics, 65(4), 602. https://doi.org/10.2307/1882581

Baklouti, I. (2020). Is the Sharia supervisory board a friend or an enemy of Islamic banks? Journal of Islamic Marketing, 13(2), 526–541. https://doi.org/10.1108/JIMA-04-2020-0118

Baltagi, B. H. (2005). Econometric Analysis of Panel Data (Third). John Wiley & Sons Ltd.

Basri, M. F. (2020). Competition and market structure of the Malaysian Islamic banking industry. Journal of Islamic Accounting and Business Research, 11(3). https://doi.org/10.1108/JIABR-08-2017-0127

Basuki, A. T., & Prawoto, N. (2021). Analisis Data Panel dalam Penelitian Ekonomi dan Bisnis (1st ed.). Rajawali Press.

Bawana, T. A., Mansor, F., & Noordin, K. (2025). Promoting ASEAN Islamic Banking Integration: Prospect and Inclusive Framework. Online Journal of Islamic Management and Finance, 5(1). https://vmis.um.edu.my/index.php/OJIMF/article/view/60809

Bougatef, K. (2017). Determinants of bank profitability in Tunisia: Does corruption matter? Journal of Money Laundering Control, 20(1), 70–78. https://doi.org/10.1108/JMLC-10-2015-0044

Buallay, A., Al Hawaj, A. A., & Hamdan, A. (2021). Integrated reporting and performance: A cross-country comparison of GCC Islamic and conventional banks. Journal of Islamic Marketing, 12(8), 1619–1636. https://doi.org/10.1108/JIMA-08-2017-0084

Derbali, A. (2021). Determinants of the performance of Moroccan banks. Journal of Business and Socio-Economic Development, 1(1), 102–117. https://doi.org/10.1108/JBSED-01-2021-0003

Ferilli, G. B., Altunbas, Y., Stefanelli, V., Palmieri, E., & Boscia, V. (2024). Fintech governance and performance: Implications for banking and financial stability. Research in International Business and Finance, 70, 102349. https://doi.org/10.1016/j.ribaf.2024.102349

Fidanoski, F., Choudhry, M., Davidović, M., & Sergi, B. S. (2018). What does affect profitability of banks in Croatia? Competitiveness Review: An International Business Journal, 28(4), 338–367. https://doi.org/10.1108/CR-09-2016-0058

Ghouse, G., Ejaz, N., Bhatti, M. I., & Aslam, A. (2022). Performance of islamic vs conventional banks in OIC countries: Resilience and recovery during Covid-19. Borsa Istanbul Review, 22, S60–S78. https://doi.org/10.1016/j.bir.2022.11.020

Gök, O., & Peker, S. (2017). Understanding the links among innovation performance, market performance and financial performance. Review of Managerial Science, 11(3), 605–631. https://doi.org/10.1007/s11846-016-0198-8

Ibrahim, M., & Arundina, T. (2022). Practial Panel Modelling with Application in Islamic Banking and Finanace Research. National Committee of Islamic Economy and Finance (KNEKS).

Iqbal, M., Kusuma, H., & Sunaryati, S. (2022). Vulnerability of Islamic banking in ASEAN. Islamic Economic Studies, 29(2), 159–168. https://doi.org/10.1108/IES-10-2021-0040

Jan, A., Marimuthu, M., & @ Mat Isa, M. P. bin M. (2019). The nexus of sustainability practices and financial performance: From the perspective of Islamic banking. Journal of Cleaner Production, 228, 703–717. https://doi.org/10.1016/j.jclepro.2019.04.208

Jensen, M. C., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency cost and ownership structure. Journal of Finance Economic, 3, 305–360.

Karbhari, Y., Alam, Md. K., & Rahman, Md. M. (2020). Relevance of the application of institutional theory in Shariah governance of Islamic banks. PSU Research Review, 5(1), 1–15. https://doi.org/10.1108/PRR-05-2020-0015

Khandelwal, S., & Aljifri, K. (2021). Risk sharing vs risk shifting: A comparative study of Islamic banks. Journal of Islamic Accounting and Business Research, 12(8), 1105–1123. https://doi.org/10.1108/JIABR-08-2018-0121

Majumder, Md. T. H., & Li, X. (2018). Bank risk and performance in an emerging market setting: The case of Bangladesh. Journal of Economics, Finance and Administrative Science, 23(46), 199–229. https://doi.org/10.1108/JEFAS-07-2017-0084

Mateev, M., Sahyouni, A., Moudud-Ul-Huq, S., & Nair, K. (2024). Bank performance and financial stability during the COVID-19 pandemic: Lessons from the MENA region. EuroMed Journal of Business. https://doi.org/10.1108/EMJB-07-2023-0182

Molla, Md. I., & Rahaman, Md. K. B. (2022). Effect of advertising spending on operating and market performance of banks: Empirical evidence from Bangladesh. Asian Journal of Accounting Research, 7(1), 97–110. https://doi.org/10.1108/AJAR-06-2021-0084

Muttaqin, I., & Qomar, M. N. (2022). Pengaruh Risiko Kredit dan Bank Size Terhadap Profitabilitas Bank Umum Syariah milik BUMN di Indonesia Sebelum Merger. 7(1), 16. http://dx.doi.org/10.29300/ba.v7i1.6224

O’Connell, M. (2023). Bank-specific, industry-specific and macroeconomic determinants of bank profitability: Evidence from the UK. Studies in Economics and Finance, 40(1), 155–174. https://doi.org/10.1108/SEF-10-2021-0413

Prati, A. H., Ashfaq, M., Ullah, S., & Hasan, R. (2024). Performance of shariah-compliant and non-shariah-compliant ETFs: A comparative study. International Journal of Islamic and Middle Eastern Finance and Management, 18(1), 121–141. https://doi.org/10.1108/IMEFM-04-2024-0181

Quttainah, M. A., Song, L., & Wu, Q. (2013). Do Islamic Banks Employ Less Earnings Management? Journal of International Financial Management & Accounting, 24(3), 203–233. https://doi.org/10.1111/jifm.12011

Riani, R., Ikhwan, I., & Rusydiana, A. S. (2024). Evaluating Islamic Bank Efficiency and Productivity in ASEAN: Does Technological Advancement Play a Role? AL-MUZARA’AH, 12(2), 233–255. https://doi.org/10.29244/jam.12.2.233-255

Roberts-Lombard, M., & Petzer, D. J. (2025). You want my loyalty? Treat me fairly! A study of Islamic banking customers in South Africa. Journal of Islamic Marketing, 16(2), 627–650. https://doi.org/10.1108/JIMA-06-2023-0178

Saif-Alyousfi, A. Y. H., Md-Rus, R., Taufil-Mohd, K. N., Mohd Taib, H., & Shahar, H. K. (2020). Determinants of capital structure: Evidence from Malaysian firms. Asia-Pacific Journal of Business Administration, 12(3–4), 283–326. https://doi.org/10.1108/APJBA-09-2019-0202

Santoso, W., Yusgiantoro, I., Soedarmono, W., & Prasetyantoko, A. (2021). The bright side of market power in Asian banking: Implications of bank capitalization and financial freedom. Research in International Business and Finance, 56, 101358. https://doi.org/10.1016/j.ribaf.2020.101358

Sobarsyah, M., Soedarmono, W., Yudhi, W. S. A., Trinugroho, I., Warokka, A., & Pramono, S. E. (2020). Loan growth, capitalization, and credit risk in Islamic banking. International Economics, 163, 155–162. https://doi.org/10.1016/j.inteco.2020.02.001

Solihin, S., Achsani, N. A., & Saptono, I. T. (2016). The Islamic Banking and The Economic Integration in ASEAN. Buletin Ekonomi Moneter dan Perbankan, 19(1), 81–106. https://doi.org/10.21098/bemp.v19i1.601

Sulistyorini, E., Sarasmitha, C., June, C. G. T., & Jauhari, B. (2024). Financial Performance: A Study of CAR and FDR Impact on ROA in Indonesian Islamic Banks. Business Management Research, 3(1), 42–57. https://doi.org/10.26905/bismar.v3i1.13505

Syamlan, Y. T., Wahyuni, S., Heruwasto, I., & Hamsal, M. (2025). Exploring sharia compliance parameters in marketing to foster innovation and collaboration within Islamic finance. Journal of Islamic Marketing. https://doi.org/10.1108/JIMA-04-2024-0172

Umar, U. H., Abduh, M., & Besar, M. H. A. (2023). Shari’a Supervisory Board and Islamic Banks’ Insolvency Risk. Journal of Islamic Monetary Economics and Finance, 9(3), 419–442. https://doi.org/10.21098/jimf.v9i3.1635

Ur Rehman, A., Aslam, E., & Iqbal, A. (2022). Intellectual capital efficiency and bank performance: Evidence from islamic banks. Borsa Istanbul Review, 22(1), 113–121. https://doi.org/10.1016/j.bir.2021.02.004

Wafi, I., & Rosdiana, R. (2025). The Impact Of Islamic Banking On Financial Inclusion In Developing Countries: A Systematic Literature Review. 7(1).

White, H. (1980). A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity. JSTOR, 48(4), 817–838. https://doi.org/10.2307/1912934

Yarmanti A., V., Ardo, A. M., & Bustami, A. W. (2025). Islamic Banking Innovation and Customer Satisfaction: A Case Study of Indonesiaand Nigeria. BANCO: Jurnal Manajemen Dan Perbankan Syariah, 7(1). https://doi.org/10.35905/banco.v7i1.11018

Yenice, A. C., & Orhan, Z. H. (2025). Exploring the strengths and weaknesses of Islamic banking in Türkiye: A multi-generational perspective. Qualitative Research in Financial Markets. https://doi.org/10.1108/QRFM-11-2024-0345




DOI: https://doi.org/10.18860/miec.v5i1.33867

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Editorial Office:

Megawati Soekarnoputri Building
Faculty of Economics
Jln. Gajayana 50 Telp (0341) 558881
E-mail: m-iecjournal@uin-malang.ac.id
UIN Maulana Malik Ibrahim Malang

Member of:

 

Indexed by:

               

Creative Commons License

Maliki Islamic Economics Journal under a CC BY SA 4.0 International License.

View My Stats