Title: Internal and external determinants of profitability of Islamic banks in Sudan: evidence from panel data

Authors: Abuzar M.A. Eljelly

Addresses: Capital Market Authority, P.O. Box 220022, Alqalaa Building, King Fahad Road, Riyadh, 11311, Saudi Arabia

Abstract: This paper aims to explore the determinants of profitability of Islamic banks in Sudan, one of the few countries that have total Islamic economic and banking systems. Using a sample of Sudanese banks, the paper found that only the internal factors to these banks have a significant impact on banks' profitability, as measured by return on assets (ROA), return on equity (ROE), and net financing margin (MARG). More specifically, cost, liquidity and size of the bank are found to have positive and significant effects on profitability. However, external macroeconomic factors are classified as redundant and have no significant effects on profitability. These results have precedence in the literature as some country-specific studies found no or very weak effects of macroeconomic variables on performance of commercial banks. Furthermore, the study found that the data are best represented with a random effects model vis-à-vis fixed effects or pooling estimation models. Finally, the study has many implications for banks, regulators and depositors with respect to liquidity, cost and bank structure in Sudan.

Keywords: Sudan; Islamic banks; profitability determinants; panel data; fixed effects; random effects; Islamic finance; return on assets; ROA; return on equity; ROE; cost; liquidity; bank size; macroeconomics; bank structure.

DOI: 10.1504/AAJFA.2013.054424

Afro-Asian Journal of Finance and Accounting, 2013 Vol.3 No.3, pp.222 - 240

Received: 31 Jan 2012
Accepted: 27 Jun 2012
Published online: 28 Jun 2014 *

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