Hamdard Islamicus (Dec 2023)
DOES TOURISM AND FOREIGN DIRECT INVESTMENT MATTER FOR THE PROFITABILITY OF ISLAMIC BANKS: EMPIRICAL EVIDENCE FROM TÜRKIYE
Abstract
This study uses panel technique analysis to investigate tourism and foreign direct investment (FDI) on the profitability of Islamic banks in Türkiye. The findings suggest that while both external funding sources matter for the profitability of Islamic banks, the impact of tourism is negative, and foreign direct investment positively contributes to Islamic banks’ profitability. According to the research findings, external sources of funding matter for the profitability of Islamic banks, but in the case of tourism, the impact is negative. At the same time, foreign direct investment positively contributes to the profitability of Islamic banks. The findings suggest that the Turkish government should create an enabling environment for foreign investors by instituting incentives, tax holidays, and reliefs which would augment foreign direct investment and bolster the funds available to Islamic banks. To mitigate the adverse effects of tourism and secure the long-term profitability of Islamic banks, it is imperative for the banks to devise an effective market penetration strategy, identify suitable customer segments, and attract conventional businesses to their offerings. Based on these findings, this study advocates for a strategic approach to developing the Islamic banking sector in Türkiye, one that recognises the importance of external funding sources and promotes their optimal utilization for sustainable growth.
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