ISLAMIC BANKING PROFITABILITY AND THE ROLE PLAYED BY THE PHILIPPINE ECONOMY
A VECTOR AUTOREGRESSION (VAR) MODEL APPROACH
DOI:
https://doi.org/10.33102/iiecons.v10i1.12Abstract
This study presents the rise and fall of Islamic banking in the Philippines and the role the economy plays as reflected in its economic history. It used econometric analysis of the past financial data of both Islamic banking as proxied by its Return on Asset (ROA) values and its host economy proxied by inflation, population, and the Gross Domestic Product or the real GDP. With EViews10 software used to perform the ADF Dickey-Fuller stationarity test, Johansen Cointegration tests the Vector Autoregressive (VAR) model, and it found that there was a short-run relationship between the economy and Islamic banking in the country. Granger causality test ascertained that the association found was unidirectional, running only from the economy to Islamic banking and that there was not enough evidence to show the reverse causal effect from the latter to the former. The impulse response function found that economic growth is positively associated with the Islamic banks’ profitability in the country, while changes in the bank’s profitability do not impact the economy. This study concludes that the Philippine economy plays a major role in Islamic banking profitability, while the same cannot be said the other way around.
Downloads
References
Abduh, M., & Azmi Omar, M. (2012). Islamic banking and economic growth: the Indonesian experience. International Journal of Islamic and Middle Eastern Finance and Management, 5(1), 35–47. https://doi.org/10.1108/17538391211216811
Abduh, M., & Chowdhury, N. T. (2012). Does Islamic Banking Matter for Economic Growth in Bangladesh ? Journal of Islamic Economics, Banking and Finance, 113(467), 1–10. platform.almanhal.com/Details/Article/22636
Abusharbeh, M. (2020). Determinants of Islamic bank financing in the Middle East: Vector Error Correction Model (VECM). Investment Management and Financial Innovations, 17(4), 285–298. https://doi.org/10.21511/imfi.17(4).2020.25
AL-Oqool, M. A., Okab, R., & Bashayreh, M. (2014). Financial Islamic Banking Development and Economic Growth: A Case Study of Jordan. International Journal of Economics and Finance, 6(3), 72–79. https://doi.org/10.5539/ijef.v6n3p72
Ali, Q., Maamor, S., Yaacob, H., & Tariq Gill, M. U. (2018). Impact of Macroeconomic Variables on Islamic Banks Profitability. International Journal of Business Ethics and Governance, 1(2), 20–35. https://doi.org/10.51325/ijbeg.v1i2.14
Ang, J. B. (2007). EFFECT OF CAPITAL MARKET DEEPENING ON FINANCIAL PERFORMANCE OF LISTED COMMERCIAL BANKS IN KENYA. Financial Deepening and Economic Development in Malaysia, 5(4).
Ascarya, A. (2012). Alur Transmisi Dan Efektifitas Kebijakan Moneter Ganda Di Indonesia. Buletin Ekonomi Moneter Dan Perbankan, 14(3), 283–315. https://doi.org/10.21098/bemp.v14i3.360
Atallah Aldalaien, B. (2019). The Impact of Islamic Banks on the Gross Domestic Product (GDP): An Empirical Study in Dubai. International Journal of Business and Management, 14(4), 135. https://doi.org/10.5539/ijbm.v14n4p135
Demirguc-kunt, A., Bank, W., & Huizinga, H. (1998). Determinants of Commercial Bank Interest Margins and Profitability : Some International Evidence. August 2014, 1–39. https://doi.org/10.1093/wber/13.2.379
Dungey, M., & Pagan, A. (2000). A Structural VAR Model of the Australian Economy. Economic Record, 76(235), 321–342. https://doi.org/10.1111/J.1475-4932.2000.TB00030.X
Elhachemi, H. G., & Othman, M. A. (2016). The impact of economic growth and financial crisis on islamic financial development in terms of size in Iran. International Journal of Economics and Financial Issues, 6(3), 116–124.
Furqani, H., & Mulyany, R. (2009). Islamic Banking and Economic Growth: Empirical Evidence from Malaysia. Journal of Economic Cooperation and Development, 30(2), 59–74.
Hasan, M., & Dridi, J. (2010). The Effects of the Global Crisis on Islamic and Conventional Banks : A Comparative Study.
Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42. https://doi.org/10.1016/0304-3932(88)90168-7
Maulia, E., Miftahuddin, & Sofyan, H. (2018). Tax revenue and inflation rate predictions in Banda Aceh using Vector Error Correction Model (VECM). IOP Conference Series: Materials Science and Engineering, 352(1). https://doi.org/10.1088/1757-899X/352/1/012056
McKinnon, R. (1973). Money and Capital in Economic Development. In The Brookings Institute Washington. JSTOR. https://doi.org/10.2307/1992568
Patrick, H. T. (1966). Financial Development and Economic Growth in Underdeveloped Countries. Https://Doi.Org/10.1086/450153, 14(2), 174–189. https://doi.org/10.1086/450153
Robinson, J. (1952). The Generalisation of the General Theory, in the Rate of Interest, and Other Essays. . In Theoretical Economics Letters (2nd ed., Issue 01). Mcmillan. https://doi.org/10.4236/TEL.2015.51012
Saleem, S. (2007). Role of Islamic Banks in Economic Development. MPRA Munich Personal RePEc Archive, 2116, 1–33.
Sassi, S., & Goaied, M. (2011). Financial development, Islamic banking and economic growth evidence from MENA region | International Journal of Business and Management Science. International Journal of Business and Management Science, 4(2), 105–128. https://search.informit.org/doi/abs/10.3316/INFORMIT.587673522717380
Schumpeter, J. A. (1934). The theory of economic development. Harvard economic studies, vol. XLVI. Harvard Economic Studies, 34, 255. https://www.hup.harvard.edu/catalog.php?isbn=9780674879904
Shaw, E. S. (1973). Financial Deepening in Economic Development. In Modern Economy: Vol. (Issue 02). Oxford University Press. https://doi.org/10.4236/ME.2017.82017
Tabash, M., & Dhankar, R. (2014). Islamic Banking and Economic Growth: An Empirical Evidence from Qatar. Journal of Applied Economics and Business, 2(1), 51–67. http://www.aebjournal.org/articles/0201/020103.pdf
Tabash, M. I., & Anagreh, S. (2017). Do Islamic banks contribute to growth of the economy? Evidence from United Arab Emirates (UAE). Banks and Bank Systems, 12(1), 113–118. https://doi.org/10.21511/bbs.12(1-1).2017.03
Yousfi, I. (2016). The Impact of Macroeconomic, Structural Variables and Banks’ Characteristics on Islamic Banks Performance : Panel Evidence from Jordanian Banks (2000 - 2014). 16, 29–42. https://doi.org/10.12816/0034356
Zarrouk, H., Ben Jedidia, K., & Moualhi, M. (2016). Is Islamic bank profitability driven by same forces as conventional banks? International Journal of Islamic and Middle Eastern Finance and Management, 9(1), 46–66. https://doi.org/10.1108/IMEFM-12-2014-0120
