DETERMINANTS OF ISLAMIC BANKS' FINANCIAL PERFORMANCE AND RISK: A PANEL DATA ANALYSIS OF 14 COUNTRIES (2013–2025)

Islamic banks have grown into systemically important institutions across the GCC, South Asia, and beyond, yet whether their profitability and risk profiles are driven by a shared set of factors — or diverge in ways that create a riskreturn trade-off — remains underexplored. This study investigates the bank-specific and macroeconomic determinants of Islamic banking sector performance (ROA) and risk (Z-score, non-performing financing ratio) using quarterly panel data from 14 countries sourced from the IFSB PSIFI Data Portal , spanning 2013Q4–2025Q4 (581585 observations). Pooled OLS, Fixed Effects, and Random Effects estimators were applied, with the Hausman test guiding model selection, and macroeconomic controls (GDP growth, inflation) added from World Bank WDI data. The results show that operating efficiency and liquidity are the most robust drivers of profitability, while capital adequacy is the dominant driver of stability.

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