Factors Influencing the Margins of Islamic Banks

Abstract

This article investigates the factors influencing the margins of Islamic banks in 15 countries for the period 2007–2013. The article also analyses the effect of the global financial crisis (2007–2009) on the Islamic banks’ margins. Despite the rapid growth of Islamic banking, the margins of Islamic banks remain higher than conventional banks. The margins reflect the costs of financial intermediation, as higher margins may discourage clients from using bank services. The findings reveal that the margins of Islamic banks are affected mainly by capital adequacy, overhead costs, liquidity risk, bank size and institutional development. Interestingly, the crisis has a positive impact on Islamic banks’ margins. These findings will be useful for the design of policies in narrowing the margins.