How does global economic policy uncertainty affect Islamic bank performance? An exploration from heterogeneous sample

This study investigates the impact of Global Economic Policy Uncertainty (GEPU) on the performance of Islamic banking, as measured by Non-Performing Financing (NPF) and Return on Assets (ROA). Utilizing quarterly data from 2014 to 2022 across three countries – Indonesia, Nigeria, and the UAE – and employing the Autoregressive Distributed Lag (ARDL) model with a Mean Group (MG) estimator, the findings indicate that GEPU does not significantly impact NPF in either the short or long term. In the short term, GEPU has the potential to reduce ROA; however, in the long term, it positively influences the profitability of Islamic banks. Specifically, in Indonesia, the results suggest an initial increase in NPF and a decrease in ROA in the short term. Conversely, in the long term, this trend reverses, with NPF declining and ROA increasing. In Nigeria, although GEPU may elevate NPF in the short term, this negative effect dissipates over time, with profitability remaining unaffected in both timeframes. In the UAE, NPF is stable in the short term, but there are indications of a long-term increase in NPF, while profitability remains stable across both short and long terms.