The Effect of Financial Soundness Indicators on Decision Profitability of Islamic Banks in Bahrain

Financial indicators are tools that can help to quantify and qualify the soundness and vulnerability of decision making in financial systems. The purpose of this research is to have an impact of financial soundness on the profitability of Islamic bank. This study uses capital adequacy ratio, non-performing loans ratio, liquid assets ratio as measurements for financial soundness indicators and return on equity as a measurement for profitability. The time series data utilized by this study is from 2013 until 2023 for the Kingdom of Bahrain. Multiple linear regression and granger causality test were used. The result showed that the non-performing loans ratio has a negative significant effect on profitability of Islamic bank. Meanwhile, the granger causality result found a one direction relationship which is non-performing loans ratio to return on equity.