The effect of delay penalty on increasing banks' profitability, case study: Bank Mellat Mazandaran branches

A bank obligation is a surplus amount on the amount of loans that is determined in Islamic banking for a borrower's fine if he or she is late in repayment. The aim of this study was to investigate the effect of late penalty on banks' profitability. For this purpose, 19999 customers of Mellat Bank branches in Mazandaran province who took loans from one of these branches between December 2012 and December 2018 have been studied. The number of branches studied in this study includes 68. The model used in this study is a probit model with one-way panel data. So that one dimension of the data is the financial and individual characteristics of the different persons taking loans from branches and the other dimension is specific to the branches and then the time is not considered in the pattern. The results of estimation indicate that there is a positive and significant relationship between tardiness penalty and profitability. Also, estimates indicate the increasing effect of income, deduction of salary, fractional payment, on the probability of banks' profitability. The results of this study are applicable in other banks and branches in order to obtain appropriate policies to increase banks' profitability. Also, the results of the studies indicate that this concept is consistent with Islamic teachings.