Open Access Journal Article

How do financial regulations and economic freedoms affect bank profitability? Empirical Evidence from the OIC Region

by Ousman Mohammed Yimam a,*
a
Faculty of Economics and Administrative Science, Ondokuz Mayis University, Samsun, Turkey
*
Author to whom correspondence should be addressed.
FEL  2024, 21; 3(1), 21; https://doi.org/10.58567/fel03010001
Received: 3 November 2023 / Accepted: 14 November 2023 / Published Online: 15 January 2024
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Abstract

Banks operating within a free economic environment and with constructive regulatory frameworks can function with enhanced efficiency, augmenting their profitability. This study aimed to examine the influence of economic freedom and financial restrictions on banks' profitability within the Organization of Islamic Cooperation member nations. The study used a sample of 1453 banks, collecting panel data spanning 13 years. The System-GMM methodology was justified based on the enduring characteristics of the data and the profitability metrics. The dependent variables, namely the Net Income Margin, Return on Average Assets, and Return on Average Equity were individually examined. The research findings indicate that most economic freedom indicators, except for investment freedom, harm bank profitability. The influence of the rule of law on profitability indicators is mostly adverse, although regulatory quality within the financial system has a comparatively favorable effect on profitability. Furthermore, bank-specific performance indicators had a negative impact on profitability, except for bank size. Moreover, country-specific variables substantially impact banks' profitability, including inflation, tax, and interest rates. The presence of Islamic banking has been shown to substantially impact the profitability performance of banks within the Organization of Islamic Cooperation. OIC banks' profitability is adversely impacted by the ongoing health crises, including the Covid-19 pandemic.

Keywords: Economic Freedom; Profitability; Banking; Islamic Banking;
Copyright: © 2024 by Yimam. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) (Creative Commons Attribution 4.0 International License). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

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ACS Style
Yimam, O. M. How do financial regulations and economic freedoms affect bank profitability? Empirical Evidence from the OIC Region. Financial Economics Letters, 2024, 3, 21. https://doi.org/10.58567/fel03010001
AMA Style
Yimam O M. How do financial regulations and economic freedoms affect bank profitability? Empirical Evidence from the OIC Region. Financial Economics Letters; 2024, 3(1):21. https://doi.org/10.58567/fel03010001
Chicago/Turabian Style
Yimam, Ousman M. 2024. "How do financial regulations and economic freedoms affect bank profitability? Empirical Evidence from the OIC Region" Financial Economics Letters 3, no.1:21. https://doi.org/10.58567/fel03010001
APA style
Yimam, O. M. (2024). How do financial regulations and economic freedoms affect bank profitability? Empirical Evidence from the OIC Region. Financial Economics Letters, 3(1), 21. https://doi.org/10.58567/fel03010001

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