Assessment of Macroeconomics Determinants on Islamic Banking Profitability and Liquidity in United Arab Emirates and Tanzania

Aims: This paper studies the determinants of Islamic banking profitability and liquidity in the United Arab Emirates (UAE) and Tanzania. It was comparative study. The study gives empirical comparisons between Islamic banks in United Arab Emirates (UAE) and Tanzania in their performance bases.

Study design: This study covers the samples of five (5) Islamic banks where by two (2) banks from Tanzania that are People Bank of Zanzibar in Islamic branch (PBZIB) and Amana Islamic bank (AIB). In the side of United Arab Emirates (UAE) three (3) Islamic banks were selected which includes Dubai Islamic Bank (DIB), First Abu Dhabi Bank (FAD) this is not an IB and Emirates Islamic Bank (EIB).

The study used secondary data of selected variables which employing panel data for the period of ten (10) years from 2010- 2019. Due to data was on panel bases which includes the two independents variables.

Methodology: To calculate profitability, the Return on Assets (ROA) was used and in liquidity in IBs deposit ratio (LDR) used to measure the liquidity .The study uses descriptive statistical analysis, correlation, multiple regression analysis for two equations according to settled objectives. The three macroeconomic variables were selected that are Gross Domestic Product per capita (GDP), inflation (INF) and exchange rate (EXCH). An autoregressive distributed lag (ARDL) model was applied because the result becomes mixed in the unit root test.

Results: The findings reveal satisfactory evidence that all selected variables are statistical significance in long run relationship except inflation in UAE. The outcomes of the study indicated that selected macroeconomic variables (GDP per capita, Inflation and exchange rates have a major 5% effect on bank profitability and liquidity in Tanzania and the United Arab Emirates.

Conclusion: The study therefore recommends the Tanzania Islamic banks should adopt several policies in order to control the liquidity which is very difference like UAE banks.