Abstract
This study utilizes firm-specific and macroeconomic data, including the number of internet users proxied as fintech, as well as ESG variables, to empirically examine the impact on the profitability and non-performing loans (NPLs) of Islamic and traditional banks in developing countries with a focus on Islamic financing. This study aimed to ascertain if our findings aligned with the New Empirical Industrial Organization (NEIO) and Tripple Bottom Line/Quadruple Bottom Line (TBL/QBL) paradigms. We collected data from more than 600 financial institutions, including both Islamic and conventional banks, from 2005 to 2022. This study complements the literature by examining a wide range of years and banks in QISMUT + 3 countries, as well as investigating the impact of the number of internet users as proxied by fintech variable and ESG variables both on NPLs and profitability indicators in both Islamic and conventional banks in Islamic finance-oriented countries. In terms of persistence, traditional banks are superior to Islamic banks, and banks with sufficient capital are more competitive and efficient in generating profits. Islamic banks (IB) outperformed conventional banks (CB) during the global financial crisis; however, CB outperformed IB in terms of credit risk management. IBs compete more effectively than CBs do because they provide unique Sharia-compliant financial products. Furthermore, the ESG and fintech proxies play a significant role in determining bank asset quality and financial performance. The results are expected to improve the understanding of Islamic banking by bankers, investors, academics, and policymakers, as well as help in policy development for the banking industry in these countries.