UNVEILING THE INTANGIBLE: AN EMPIRICAL STUDY ON INTELLECTUAL CAPITAL AND FINANCIAL PERFORMANCE IN ISLAMIC BANKS

In the evolving knowledge-based economy, intellectual capital (IC) has become a pivotal factor influencing firm performance, particularly in the banking sector. However, there is limited empirical evidence regarding its impact within Islamic financial institutions, especially in Pakistan. This study examines the impact of intellectual capital performance on the financial outcomes of five major Islamic banks in Pakistan from 2019 to 2023. The study employs the Modified Value-Added Intellectual Coefficient (MVAIC) model to measure IC efficiency, including Human Capital Efficiency (HCE), Structural Capital Efficiency (SCE), Relational Capital Efficiency (RCE), and Capital Employed Efficiency (CEE). Using panel data regression with 28 observations, the analysis reveals that only HCE has a statistically significant and positive effect on Return on Equity (ROE) (β = 31.05, p < 0.05). At the same time, other components, such as SCE, RCE, and CEE, show no significant relationship. The results highlight that human capital is the most critical intangible asset driving profitability in Islamic banking. The study recommends that Islamic banks prioritize investments in human capital through training, retention, and development strategies. It also suggests the need to strengthen both structural and relational capital to achieve a more balanced and sustainable intellectual capital framework, thereby securing long-term competitive advantage.