Adwan, SamiBadghaish, Lina Mohammed A2023-12-272023-12-272023-09-02https://hdl.handle.net/20.500.14154/70451This study aims to assess the determinants of profitability for Islamic and conventional banks in the Middle East. This study uses time series analysis on the sample of eighty banks (forty Islamic and forty conventional) from 13 banks in the Middle East for the period of 2018-2022. Three internal profitability determinants included bank size, capital adequacy, and deposit to total assets (DEP) and two external determinants such as GDP and inflation selected as independent variable for the study. Furthermore, profitability measure return on total assets (ROA) selected as dependent variable. Data on internal determinants and profitability measure gathered through using Fintech database and data on inflation and GDP gathered through using World Bank website. Data subjected to regression and correlation analysis statistical tools. Descriptive analysis of data validates the predictive reliability of empirical model of the study. Furthermore, Cronbach’s Alpha analysis further validates the reliability of data by 72% and 76% for Islamic and conventional banks respectively. Study finds positive and significant relationship between bank size, capital adequacy, and DEP, with profitability for Islamic banks. In contrast, while positive and statistically significant impact of bank size and capital adequacy found on profitability of conventional banks, however DEP found to be negatively and significantly impacting profitability of conventional banks. When it comes to external determinants, inflation found to be positively impacting profitability of both Islamic and conventional banks. However, it appears that due to profit and loss sharing principles, Islamic banks appears to be neutral to fluctuation of GDP, however, same found to be negatively and significantly impacting profitability of conventional banks. These findings direct multiple implications such as both Islamic and conventional banks to adopt expansionary business strategy through investing in technology rather than in physical assets, both banks should maintain minimum 8% capital adequacy in accordance with BASEL III requirement even through DEP does not impact profitability of Islamic banks. Another implication of this study for authorities of conventional bank is to develop balance in DEP and loan-to-deposit ratios to mitigate risk to business. Additionally, study implicates that although inflation positively impacts profitability of banks, however it also risks their long-term growth due to the damage to the loan growth, therefore banks should adopt innovative business strategies through offering low rate to small businesses to ensure continuity of business in long-term. Finally, study implicates that management of conventional banks to adopt agile business strategy which will reduce their vulnerability of GDP growth. However, study suffers from limitations of using small number of profitability determinants variables and profitability measures. Future studies can use findings of this study to conduct large scale study involving large number of variables.56enAssessing determinants of profitabilityIslamic and conventional banks in the Middle EastInvestigate the impact of micro and macro environmental factors on the profitability of Islamic and conventional banksmarket power theorybalanced portfolio theoryTime series analysis methodForty Islamic and forty conventional banks selected from ten countries in the Middle EastQuantitative methodologyThesis