Impact of Bank Credit on Bank Performance: Sector-Wise Panel Data Analysis of Islamic Banks in the Sultanate of Oman
DOI:
https://doi.org/10.71086/IAJSE/V13I3/IAJSE13101Keywords:
Islamic Bank, Bank Credit, Industry Type, Total Liabilities, Performance, ROA.Abstract
There have been substantial developments in Islamic banking in Oman; thus, it is imperative to know how the credit allocation of various economic sectors impacts the performance of Islamic banks in the country. However, there is little empirical literature that indicates the impact of credit allocation in specific industries on the financial performance of Islamic banks in Oman. The purpose of the study is to find out the influence of credit allocated to chosen economic sectors on the performance of Islamic banks using Return on Assets (ROA) as the performance measure. The research uses a quantitative research method by collecting secondary data from the annual reports of Bank Nizwa and Al Izz Islamic Bank between the years 2019 - 2023. The study employs a balanced panel of 10 observations in which credit allocation in construction sector (CS), credit allocation to banks and financial institutions (BFS), credit allocation in the government sector (GS), and credit allocation in the service sector (SS) have been considered as independent variables, whereas total liabilities (TL) have been considered as control variables. Based on the above regression analysis results, none of the bank credit variables for each specific sector is statistically significant at the 5% level of significance for ROA. For instance, construction sector bank credit had a negative beta (β = −10.1081; p = 0.143), while BFS sector bank credit was negative (β = −1.5264; p = 0.544). Government sector bank credit (β = 4.5368; p = 0.114) and service sector bank credit (β = 3.4436; p = 0.310) were positive but statistically insignificant for ROA. Total liabilities were also not significant (β = 4.9130; p = 0.195). The adjusted R² for the model was 0.5984. Based on the above results, there is no statistically significant evidence that bank credit for each specific sector has any influence on ROA for the two Omani Islamic banks for the period 2019 to 2023.
