Financial Performance of Palestinian Islamic Banks (2016–2024): An Empirical Analysis of Profitability, Liquidity, and Efficiency

Abstract

This study presents a comprehensive longitudinal evaluation of the financial performance of Palestinian Islamic banks over the period 2016–2024, focusing on three pivotal dimensions: profitability, liquidity, and operational efficiency. Through rigorous ratio analysis of published annual reports, we examine key indicators—Return on Assets (ROA), Return on Equity (ROE), Net Profit Margin (NPM), Financing-to-Deposit Ratio (FDR), Liquidity Coverage Ratio (LCR), Cost-to-Income Ratio (CIR), and Asset Utilization Ratio (AUR). Our findings unveil pronounced volatility in profitability: ROA contracted from 0.99 percent to –0.16 percent and ROE receded from 6.85 percent to –1.7 percent by 2024, under the compounded pressures of the COVID-19 pandemic and enduring geopolitical instability. In contrast, liquidity profiles remained robust—FDR held steady at 75 percent and LCR near 40 percent—reflecting effective Shariah-compliant funding strategies. Simultaneously, operational efficiency improved markedly: CIR declined from 41.1 percent to 31.2 percent, while AUR rose from 6.8 percent to 8.4 percent, driven by targeted digitalization initiatives and cost-optimization measures. These results underscore the sector’s resilience and adaptability, and inform strategic imperatives for enhancing liquidity instruments, fostering financial innovation, and accelerating digital banking adoption within evolving regulatory frameworks.