The determinants of Saudi Islamic Bank profitability

Ali Medabesh

Assistant professor, CBA, Jazan University, KSA

Email : alim@jcba.edu.sa

Accepted 22 November 2012

Abstract

This paper is focused on identifying the determinants of Saudi bank profitability. The economic literature, classifies them into two types: internal and external for the banks. For the empirical investigation, we used solid scientific approach to find the financial and macroeconomic factors affecting generation of profits by Saudi banking sector. In this survey, we estimated an econometric model using the method of ordinary least squares, for a period dating from 1990 to 2008, and we used variables covering several financial and monetary factors, which could be related to creation of value by banks in economic literature.  The model elaborated using the effectiveness approach to judge the acting of banking institutions, contribute in consolidating the operating behaviour of Saudi banks, which are targeting long run investment, not concentrated on generation of short term profit and avoiding exposure to risk. This attitude gave to Saudi banking sector in international market, a good reputation and solid credibility by borrowers.

Keywords: bank, financial institutions, profitability.