Performance of Islamic Banks and Economies of Selected Muslim Countries

Abstract

This study is a strict attempt to determine the relationship between economic growth and performance of Islamic banks in few selected Muslim countries from 2014 to 2016. The macroeconomic components that were taken into consideration as indicators to economic growth were gross domestic product -GDP, foreign direct investment- FDI, inflation and unemployment in three selected countries; Malaysia, Indonesia and Maldives. Three banks from these three countries were taken into account as representatives for Islamic banks. Comprehensive income and net cash inflows have been considered as measures of performance of each bank. The empirical results show that performance of Islamic banks vary in linear relationship with indicators of economic growth in selected countries. Of the macroeconomic components that were empirically analysed against growth of Islamic banks, FDI net inflows displayed the strongest positive linear relationship with banks’ performances followed by GDP. It is thus concluded, that the performance of Islamic banks have connection, but to varying extents with different indicators of economic growth in their respective countries of operations.