Capital Adequacy and Profit-Sharing Behaviour in Nigerian Islamic Banks: Evidence from Jaiz Bank and TAJ Bank (2023–2025)

This study investigates the relationship between capital adequacy and profit-sharing procedures in Nigerian Islamic banks, with a particular focus on Jaiz Bank Plc and TAJ Bank Limited for the years 2023–2025. Profit-and-loss sharing (PLS) is the foundation of Islamic banking; however, Basel III-aligned regulatory capital requirements may have an impact on payout stability, profitability, and incentives for taking on risk. The study examines the relationship between Capital Adequacy Ratio (CAR) and Profit Sharing Ratio (PSR), Return on Assets (ROA), and Non-Performing Financing (NPF) using quarterly panel data, fixed effects regression, and dynamic Generalised Method of Moments (GMM) estimation. The results show that while lowering financing risk, increased capital adequacy greatly improves profit-sharing stability and profitability. In contrast to the capital trade-off idea, higher capital buffers support operational resilience and depositor confidence rather than displacing distributable earnings. The findings are consistent with buffer capital theory and show that regulatory capital has a disciplinary effect on Islamic banking practices in emerging markets. The study has policy implications for regulators, Islamic bank management, and stakeholders in the financial industry, and it adds to the scant empirical literature on non-interest banking in Nigeria.