Financial inclusion and bank profitability: Evidence from a developed market

Abstract

Previous literature supports the view that financial inclusion leads to economic growth and helps alleviate poverty; however, it is still unclear whether financial inclusion increases bank profitability. Using a sample of 122 Japanese banks from 2004 to 2018, we investigate this question. We find that financial inclusion is important even in a developed economy; branch contraction reduces the profitability of Japanese banks, although the numbers of loan accounts and automated teller machines (ATMs) do not affect bank profitability. Among bank-specific variables, cost management, credit risk management, and bank size are the key drivers of profitability.