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The Nexus between Economic Freedom and Islamic Bank Performance in the MENA Banking Sectors

Sufian, Fadzlan and Zulkhibri, Muhamed (2011): The Nexus between Economic Freedom and Islamic Bank Performance in the MENA Banking Sectors.

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Abstract

The study examines the impact of economic freedom on Islamic banks’ performance operating in the MENA banking sectors during the period 2000-2010. We find that the larger, more diversified, and better capitalized Islamic banks relatively more profitable, while credit risk and expense preference behaviour seem to exert negative impact. The findings suggest that greater financial freedom positively influences the profitability of Islamic banks operating in the MENA banking sectors. Interestingly, the impact of monetary freedom is negative related to performance implying that higher degree of monetary policy independence reduces Islamic banks’ profitability, thus, supporting the benefits of government intervention in the development of Islamic banking system.

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