Assessing the Liaison between Financial Risk and Profitability in Islamic Finance: A Critical Analysis

Abstract

The aim of study is to empirically analyze the impact of financial risk on the profitability of Islamic banks. To fulfill the aim of study, required data, ranging from 2018 to 2022, were obtained from the database of World Bank, Global Economy, Trading Economy and annual reports. Unit root test and ordinary least square models were used to normalize the data and to estimate the relation of financial risk with profitability respectively. It was determined that credit risk and liquidity risk had no relation with profitability and lagged return on asset had positive significant relationship. Study had not found any relationship between financial risk and performance of Islamic Banks.