Impact of Macroeconomic Variables on Islamic Banks Profitability
DOI:
https://doi.org/10.51325/ijbeg.v1i2.14Keywords:
Islamic banks; Brunei; Profitability; Macroeconomic Variables; Panel Data AnalysisAbstract
The main objective of this study is to investigate the impact of macroeconomic variables on Islamic banks’ profitability in Brunei. The sample includes Bank Islam Brunei Darussalam (BIBD) from 2012 to 2016. Profitability was measured by Return on Assets (ROA) and Return on Equity (ROE) while macroeconomic variables included were GDP growth rate, inflation, interest rate, exchange rate, oil prices, competition, and money supply. Data was obtained from DEPD, AMBD, and IMF annual reports. The fixed effects panel regression technique was adopted to measure the impact of each variable on Islamic banks’ profitability using Stata 15. The findings revealed that GDP growth rate, inflation, exchange rate, oil prices and money supply have a significant and a positive impact on profitability. While oil prices, GDP and inflation are the most significant variables, exchange rate and money supply are the least significant determinants of profitability. The study therefore recommends the regulators and policy makers to discover alternative ways to rejuvenate the economic and the financial system. Islamic bankers may revamp their marketing strategies to reduce the impact of macroeconomic variables. This study has vigorously contributed to the existing literature of Islamic banks’ profitability, in the context of a single country analysis, particularly in Brunei.
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