Financial inclusion and banks' performance: Evidence from Palestine

Fadi Shihadeh

doi:10.21511/imfi.18(1).2021.11

Abstract

This study aims to examine the relationship between financial inclusion indicators and bank performance in Palestine. The study population and its sample include all 15 banks operating in Palestine and cover the period 2006 to 2016 with panel data from 162 observations. To interpreter the variables, the study uses the volume of loans to SMEs (usage), banking penetration, number of ATMs and branches (access), and online banking, the latter if it is a dummy variable. Further, the study uses operational profits, total revenues and ROE as bank performance indicators and dependent variables. Using empirical analysis, the results indicated that banking penetration tools, branching and ATMs, could enhance bank performance. Despite the decline in lending to SMEs, this factor could positively improve the performance of banks in Palestine. In general, financial inclusion helps banks improve their performance and increase their revenues. This study recommends that government organizations can use the obtained results to formulate their strategies and agendas for improving financial inclusion in Palestine and other developing countries. Acknowledgment The author is thankful to Bo Liu and Azzam Hanoon for their comments and suggestions to improve this paper. The author discloses that funding for the writing of this paper comes from the TAAWON research fund.

Highlights

Banks play a critical role in financial and economic development; they attract deposits and offer direct and indirect financial services, such as; loans, mortgages, credit and debit cards, etc. (Beck et al, 2015)
Operational profits, total revenues, and return on equity (ROE) are used as bank performance indicators; loans to SMEs, banking penetration, and online banking are used as indicators of bank penetration and financial inclusion
It has been found that financial inclusion helps banks improve their performance and increase their revenues

Summary

Introduction

Banks play a critical role in financial and economic development; they attract deposits and offer direct and indirect financial services, such as; loans, mortgages, credit and debit cards, etc. (Beck et al, 2015). Banks’ achievement of these supply-side targets depends on companies, SMEs and individuals, whom they consider to be a demand side of banking services, where the main problem on the demand side is the trading and investment process by looking for financial services offered by banks.

Objectives

Results

Conclusion