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Jurnal Ekonomi Malaysia

55 (3) 2021 149 – 164

The Impact of Financing Contracts on the Profitability of Islamic Banks

Faculty of Business, Economics and Social Development
University of Malaysia Terengganu
21030 Kuala Nerus, Terengganu
MALAYSIA.

maisyarah2001@gmail.com

Faculty of Business, Economics and Social Development
University of Malaysia Terengganu
21030 Kuala Nerus, Terengganu
MALAYSIA.

bayu@umt.edu.my

Faculty of Business, Economics and Social Development
University of Malaysia Terengganu
21030 Kuala Nerus, Terengganu
MALAYSIA.

nizamahmat@umt.edu.my

Abstract

This paper investigates the impact of financing contracts on Net Profit Margin (NPM) of the Islamic banks. Focussing on two financing contracts of Bai’ Bithaman Ajil (BBA) and Al-Ijarah Thumma Al-Bai’ (AITAB), the paper employs static panel data of Malaysian banks over 2008 to 2018. Controlling for bank and market-specific factors, the results indicated that AITAB exerted significant impact on the NPM. The paper further found that risk aversion, operating cost, liquidity and asset quality improves the NPM. In addition, the results show that the market structure influence the level of NPM. The Islamic banks may control these variables in setting for their preferred NPM level. Finally, the banks may need to carefully examine the types of financing contracts offered as they have different characteristics and may affect NPM.

Keywords

al-ijarah thumma al-bai’; bai’ bithaman ajil; Islamic bank; Net profit margin; Profitability

JEL Codes

G000, G200, G210
http://dx.doi.org/10.17576/JEM-2021-5503-11
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Bibliography

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Stapah @ Salleh, M., Possumah, B. T., & Ahmat, N. (2021). The Impact of Financing Contracts on the Profitability of Islamic Banks. Jurnal Ekonomi Malaysia, 55(3), 149–164. http://dx.doi.org/10.17576/JEM-2021-5503-11

@article{salleh2021impact,
  title={The Impact of Financing Contracts on the Profitability of Islamic Banks},
  author={Stapah @ Salleh, Maisyarah and Possumah, Bayu Taufiq and Ahmat, Nizam},
  journal={Jurnal Ekonomi Malaysia},
  volume={55},
  number={3},
  pages={149—164},
 

year={2021},
}

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