COMPETITION AND OTHER EXTERNAL DETERMINANTS OF THE PROFITABILITY OF ISLAMIC BANKS

In most of the Muslim countries, Islamic banks are operating side by side with conventional banks. This study examines the effects of competition and some other external factors on the profitability of Islamic banks. The banks chosen for this study were divided into two groups according to the market in which they operate. The study finds that Islamic banks in competitive market earned more than those which operate in a monopolistic market. Evidence was also found to support the hypothesis that the profit-loss sharing principle practiced by Islamic banks is beneficial to both depositors and the banks.