Impact of policies on islamic banking performance

This paper aims to examine the role of public policy and internal bank policies on Islamic banking performance. Profitability is used as an indicator of bank performance. Public policy is measured by political stability and regulatory quality, while internal factors are measured by size, capitalization, and liquidity. Using regression analysis, this study shows that public policy has a significant negative relationship with bank performance, while size, capitalization, and liquidity have a significant positive relationship with it. Our empirical results allow us to conclude that Islamic banking was negatively exposed to performance-dampening circumstances during the “Arab Spring” period, which fell on a highly-competitive industry. This study concerns on the originality of using political stability and regulatory quality as the new variables to measure public policy in Islamic bank.