Employee performance in Islamic banking sector: a cross-country study of Islamic human capital and Islamic work ethic

Purpose This study aims to examine Islamic human capital (IHC) has a positive effect on employee performance and whether Islamic work ethic (IWE) plays a mediating role in this relationship. Design/methodology/approach This study uses a quantitative approach. Data analysis uses a structural equation modeling-partial least squares approach with multi-group analysis using Smart-PLS 4. The sample of this study was 190 respondents from employees of Islamic banking institutions in Indonesia and Malaysia. Findings Overall, IHC positively influences employee performance, with IWE acting as a mediator across the combined samples of Indonesia and Malaysia. At the country level, the results reveal divergent patterns. For Malaysia, IHC shows a positive and significant relationship with employee performance. For Indonesia, however, the direct relationship between IHC and employee performance is not significant. IWE therefore plays a crucial mediating role in linking IHC to employee performance across both contexts. Research limitations/implications This study is limited by its cross-sectional design, purposive sampling and focus on Islamic banking employees in Indonesia and Malaysia. Future research should use longitudinal designs, broader samples and alternative performance measures to strengthen causal and contextual understanding. Practical implications The findings suggest that Islamic banks should not treat IHC development as a stand-alone performance strategy. Managers need to translate Islamic knowledge and Sharia-based competencies into IWE through ethics-oriented recruitment, values-based training and performance appraisal systems that include behavioral indicators such as trustworthiness, responsibility, discipline, transparency and Sharia-compliant conduct. This is particularly important in contexts where the direct role of IHC in employee performance is weaker, as stronger organizational support and ethical HR practices may help convert human capital into performance-related outcomes. Social implications This study highlights the broader social role of Islamic banking in promoting ethical professionalism, public trust, financial inclusion and socioeconomic justice. The findings suggest that IHC and IWE are not only internal organizational resources but also mechanisms through which Islamic banks can project Islamic values in professional practice. Strengthening Sharia-related knowledge and Islamic work values among employees may help Islamic banks provide fair, accountable and socially responsible services, thereby enhancing the societal credibility of Islamic finance. Originality/value This study offers a contextually grounded and theory-informed extension of the Islamic HRM literature by examining how IHC relates to employee performance through IWE across two institutional settings, Indonesia and Malaysia. Rather than claiming a wholly novel relationship, the study advances prior mediation-based research by showing that the performance value of IHC is contingent on how Islamic ethical norms are internalized within different national and organizational contexts. By combining the resource-based view with institutional theory, this study explains why similar IHC investments may generate different performance outcomes across countries and demonstrates that IWE functions as a key normative mechanism linking Islamic competence to employee performance in Islamic banking.