THE ROLE OF CAPITAL BUFFER AND EFFICIENCY ON THE PROFITABILITY OF ISLAMIC BANKS: AN EVIDENCE FROM ASEAN

Abstract

Recently, the profitability of financial institutions, especially the banking sector has been an essential element for the country’s economic growth around the globe. This aspect requires the intentions of recent studies and policymakers. Hence, the present article investigates the impact of capital buffer, efficiency in terms of collection of receivables, bank size, liquidity and leverage on the profitability of the Islamic banks in ASEAN countries. The study collected the secondary data of the Islamic Banks of the ASEAN countries from the Islamic Financial Services Board (IFSB) from 2010 to 2022. The article also used the Feasible Generalized Least Square (FGLS) method to test the association among the variables. The outcomes indicated that the capital buffer, efficiency, banks size, liquidity and leverage have a positive linkage with the profitability of the Islamic banks in ASEAN countries. The study guides the policymakers in making policies related to improve the profitability of the banks by focusing on the capital buffer and efficiency.