Bank-specific and macroeconomic profitability determinants of Islamic banks The case of different countries Omar Masood University of East London, London, UK, and Muhammad Ashraf Superior University, Lahore, Lahore, Pakistan Abstract Purpose – The purpose of this paper is to inspect whether bank-specific and macro-economic determinants influence Islamic banks’ profitability in the selected countries of different regions. Design/methodology/approach – In order to achieve the study objective and to answer the question, the balanced panel data regression model has been used. Bank level data is used and this study examines the alternative measures ROA and ROE as a bank-specific function and macro-economic determinants. Findings – The study results signify that banks with larger assets size and with efficient management lead to greater return on assets. Originality/value – The paper shows that management efficiency regarding operating expenses positively and significantly affects the banks’ profitability. Keywords Islam, Banks, Profits, Assets, Operating costs, Islamic banks, Bank-specific determinants, Assets size, Profitability Paper type Research paper 1. Introduction In economies, the financial institutions perform key role in financial activities; like mechanism of payment, behavior of financial market demand and supply match concept, dealing with financial market and instruments, assure transparency in financial market, and perform function like transfer and management of risk. In service providing economies, the banks play very crucial role as a financial intermediaries and also considered very important for economies functions. The economic growth can also affect financial intermediation efficiency. Moreover, insolvencies of bank can lead to crisis as a whole. The banking sector profitability contributes in economies and makes economies to endure negative and external financial shocks and contribute in financial system stability (Athanasoglou et al., 2005). For that reason, understanding of profitability determinants is crucial. The main objective of Islamic banks is attaining of greater profit through the increase in Islamic banks owners wealth by achieving of higher return on investment. This is not only the target of the owners, but the objective of depositors also. The depositors also invest their money on revenue sharing basis and fact of the matter is increasing of return which would benefit the funds depositors. The current issue and full text archive of this journal is available at www.emeraldinsight.com/1755-4179.htm Profitability determinants of Islamic banks 255 Qualitative Research in Financial Markets Vol. 4 No. 2/3, 2012 pp. 255-268 q Emerald Group Publishing Limited 1755-4179 DOI 10.1108/17554171211252565