A comparative study of Islamic conformity, profitability, and green performance in Southeast Asian Islamic banks

Southeast Asian countries, as members of the Association of Southeast Asian Nations (ASEAN), hold the second-largest Sharia financial assets globally. This study aims to assess the comparative performance of Islamic banks across ASEAN, examine the relationship between Islamic conformity, profitability, and green banking practices, and compare performance indicators between Malaysian and Indonesian Islamic banks. The sample includes Islamic banks from Indonesia, Malaysia, Brunei Darussalam, Thailand, and the Philippines. The findings reveal consistent adherence to Sharia principles across all banks, demonstrating strong Islamic conformity. However, financial performance indicators such as Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM) show significant variability, reflecting differences in operational efficiency and profitability. Green banking practices positively correlate with profitability, particularly ROA and NPM, emphasizing the role of Environmental, Social, and Governance (ESG) initiatives in enhancing operational efficiency and customer loyalty. The comparative analysis highlights that while both Malaysian and Indonesian Islamic banks exhibit consistent Islamic conformity, Malaysian banks outperform their Indonesian counterparts in green banking practices and profitability. This advantage is attributed to Malaysia’s advanced regulatory environment, which promotes sustainable finance, whereas Indonesian banks face greater profitability variability, necessitating improved governance and operational strategies. These findings offer valuable insights for policymakers and stakeholders, showcasing how Islamic financial principles can integrate with sustainability practices to achieve profitability and environmental responsibility in Islamic banking. Acknowledgment(s)The authors extend their gratitude to the Ministry of Higher Education, Science and Technology of the Republic of Indonesia for funding this research and to the Research and Community Service Centre of Universitas Mercu Buana for their valuable support.