IMPACT OF FINANCING RISK ON PROFITABILITY OF ISLAMIC BANKS

Main Article Content

Zineb Afif
Camélia Sehaqui
Mohamed Haissoune
Mohamed Azeroual

Abstract

Banks, as financial intermediaries, face a variety of risks that significantly affect their performance and stability. Islamic banks, like conventional banks, are particularly vulnerable to financing risk, which directly affects their profitability and, if not properly managed, can lead to severe financial distress or even bankruptcy. The purpose of this study is to investigate the relationship between financing risk and the profitability of Islamic banks operating in the MENA region. This research utilizes a panel dataset comprising 14 Islamic banks over ten years from 2013 to 2022. Profitability is measured through the return on assets (ROA), while financing risk is assessed using the nonperforming financing ratio, the financing-to-asset ratio, and the capital adequacy ratio. The study employs panel regression analysis to evaluate secondary data extracted from banks' financial reports. The results indicate that both the financing-to-asset ratio and the capital adequacy ratio have a positive impact on the return on assets, suggesting that a well-managed financing structure and robust capital adequacy contribute to enhancing bank profitability. Conversely, the findings reveal that the nonperforming financing ratio negatively impacts the return on assets, highlighting the detrimental effects of poor financing quality on overall bank performance. The significant findings of this study suggest that Islamic banks should place a greater emphasis on mitigating financing risk through maintaining a strong capital base, diversifying their portfolios, and implementing effective credit risk management practices. This approach would not only enhance profitability but also safeguard the banks against potential losses and financial crises.


JEL Classification Codes: G21, F65, C23.

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Section

Research Paper/Theoretical Paper/Review Paper/Short Communication Paper

Author Biographies

Zineb Afif , Ph.D. Student, Laboratory of Economics and Management (LEG), Sultan Moulay Slimane University, Morocco

Zineb Afif is a Ph.D. student at the Laboratory of Economics and Management (LEG), Sultan Moulay Slimane University, Morocco. Her academic interests lie in economics and management, with a focus on advancing research in these fields. She is actively engaged in scholarly activities and contributes to the academic community through her research and participation in academic forums.

Camélia Sehaqui , Ph.D. Candidate, Research Laboratory in Management and Development (LRMD), Faculty of Economics and Management, Hassan First University of Settat, Morocco

Camélia Sehaqui is a Ph.D. candidate at the Research Laboratory in Management and Development (LRMD), Faculty of Economics and Management, Hassan First University of Settat, Morocco. Her research interests center on management and development studies, contributing to the advancement of knowledge in these fields. She is actively involved in academic research and scholarly engagement within her institution.

Mohamed Haissoune , Professor, Research Laboratory in Management and Development (LRMD), Faculty of Economics and Management, Hassan First University of Settat, Morocco

Professor Mohamed Haissoune is a faculty member at the Faculty of Economics and Management, Hassan First University of Settat, Morocco, where he is affiliated with the Research Laboratory in Management and Development (LRMD). His academic and research activities focus on advancing knowledge in management and development, with significant contributions to teaching, research, and mentoring within his field.

Mohamed Azeroual , Professor, Laboratory of Economics and Management (LEG), Sultan Moulay Slimane University, Morocco

Professor Mohamed Azeroual is a faculty member at the Laboratory of Economics and Management (LEG), Sultan Moulay Slimane University, Morocco. He specializes in economics and management, contributing extensively to teaching, research, and academic development. His work supports the advancement of knowledge in these fields and the mentoring of graduate students.

How to Cite

Afif , Z., Sehaqui , C. ., & Haissoune , M. . (2025). IMPACT OF FINANCING RISK ON PROFITABILITY OF ISLAMIC BANKS. International Journal of Islamic Banking and Finance Research, 13(1), 29-35. https://doi.org/10.46281/ijibfr.v13i1.2604

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