assessing the impact of resource allocation strategies on the performance of iran’s banking system: an islamic banking perspective

This study investigates the impact of allocation of banking resources based on exchange contracts and partnership contracts on the performance of islamic banks. given the distinct nature of the islamic contracts, resource allocation strategies play a pivotal role in shaping bank profitability. this research aims to assess how these allocation strategies influence the performance of islamic banking systems. using annual data from the iranian banking system (1986–2023), this study employs an ardl model to analyze the relationships between resource allocation policies and bank performance in short and long-run. empirical findings reveal that a one-unit increase in the ratio of exchange to partnership contracts is associated with a 2.9-unit improvement in banking performance. this suggests that reallocating financial resources toward exchange contracts contributes positively to the efficiency of banks. the underlying rationale may lie in the predetermined and fixed return structure of exchange contracts, which typically entail lower risk compared to partnership-based contracts governed by the profit-and-loss sharing framework and are more vulnerable to fluctuations in macroeconomic conditions. this result is further corroborated by the observed inverse relationship between economic growth and banking performance in long run. additionally, the analysis indicates that inflation exerts a detrimental effect on banking performance, whereas an increase in the exchange rate appears to improve it. consequently, the results show that an increase in the ratio of exchange to partnership contracts can improve the overall performance of banks, highlighting the practical advantages of more stable, return-predictable financing instruments under certain economic conditions.