Bank Embranchment, Operating Efficiency and Profitability of Islamic Banks Selected Countries

Abstract

Despite the growing demand for non-interest banking products and services, inadequate embranchment and inefficiency of the branches tend to hamper the banks’ profitability. This study therefore assessed the effects of bank embranchment and operating efficiency on profitability of non-interest banks in selected countries. Specifically, the study examined the effects of number of bank branches, cost to income ratio as well as their interaction, on return on assets of the banks. Data were extracted from IFSB database and were analysed using Fixed effects regression technique. Results of data analysis revealed that bank branches had positive significant (Coff= 2.28, p <0.05) effect while cost to income ratio had negative significant (Coeff=-0.11, p <0.05) effect on return on asset. The interactive effect of cost to income ratio was also found to significantly negative (Coeff=-0.03, p <0.05) on return on asset. The study concluded that bank embranchment and operating efficiency are key to improved profitability of non-interest banks in the selected countries. The study recommended that bank regulatory authorities should provide enabling environment to facilitate establishment of more branches of non-interest banks particularly in the rural communities. This will increase bank profitability and encourage financial inclusion. In addition, the management of non-interest banks should make efforts to control operating the cost of running the branches to have maximum benefit of embranchment on profitability.