From obstacles to new opportunities: Exploring profitability in the banking industry amid sustainability and the green transition

This study aims to research the impact of corporate governance on banks performance of the Gulf Cooperation Council countries (GCC), through an econometric study, based on multiple regression analysis of Panel data, and the Generalized Method of Moments (GMM), for a sample of 24 commercial banks, during the period (2010-2021). We measured the corporate governance, through board characteristics indicators: board size (BS), executive members on the board (EXC), board independence (IND), number of board meeting (NBM), and we measured the banks performance, through two indicators : return on average assets (ROAA) and return on average equity (ROAE). The results concluded that there is a significant positive impact of BS, IND on ROAA- ROAE, and a significant negative impact of EXC, NBM on ROAA- ROAE, that what confirms all our hypotheses, in line with agency, and resource dependence theories. The results confirm that an effective board of directors promotes sound corporate governance and thus achieving good performance.

This study investigates the macro and micro variables affecting commercial bank profitability in the United States from 2017 to 2021. The research sample is the nine commercial US banks and the research study develops a panel regression model to analyze the data. This research regards the probability indexes return on average assets (ROAA) and return on average equity (ROAE). The study finds that liquidity risk is one of the most crucial factors affecting profitability, both on ROAA and ROAE. The leverage ratio and capital adequacy negatively influence profitability, especially on ROAE. However, the profitability of these US commercial banks is not influenced by the bank size and the macro determinants, which include the pace of growth of the economy, the rate of inflation, and the rate of lending interest are all factors to consider. The paper also presents recommendations for decreasing the liquidity risks and controlling the risk to maintain a healthier economic environment for the US commercial banks based on the empirical findings.

Effective corporate governance is fundamental to the correct operation of the banking sector. This study examines corporate governance in terms of the effects of different combinations of institutional investors on the performance of Portuguese banks. Effects based on kind (e.g. type of institutional investor) and degree (e.g. institutional investor experience) are considered. The results of a crisp-set qualitative comparative analysis (csQCA) show that the simultaneous presence of banks and corporations as shareholders, and non-presence of financial companies can positively affect banks’ return on average assets (ROAA) and return on average equity (ROAE). This research provides a wider picture of possible impacts in terms of banks’ performance when there are different types of institutional owners. Lastly, the results are particularly relevant for the supervision protocols developed by the Bank of Portugal and the European Central Bank, in situations of changes of banks’ shareholders.

This study aims to investigate the impact of bank-specific factors which include the liquidity, credit, capital, operating expenses and the size of commercial banks on their performance, which is measured by return on average assets (ROAA) and return on average equity (ROAE). The results imply that ratios employed in this study have different effects on the performance of banks in both countries, except credit and capital ratios. Operating ratios influence performance of banks in China, but this influence is not true for Malaysian banks regardless of the measure of performance.

Purpose Islamic banks have significantly different balance sheets from their conventional counterparts, leading to different implications in relation to liquidity creation compared to conventional banks. This work, first, investigates the liquidity creation of conventional and Islamic banks in Middle Eastern and North African (MENA) countries between 2011 and 2016. It then tests the relationship between liquidity creation and performance of these banks. Design/methodology/approach It uses the data of 491 commercial banks across 18 MENA countries between 2011 and 2016. The analysis is based on panel data techniques. Findings The banks created US$18.596 trillion of liquidity, about 28.4% of total assets. Conventional banks created more liquidity compared with Islamic banks. Nevertheless, Islamic banks created more liquidity per asset compared with conventional banks. The regression analysis revealed a significant and negative correlation between liquidity creation and performance of the banks using return on average equity (ROAE) measure. However, no significant relationship is observed between liquidity creation and return on average assets (ROAA) of MENA banks. Moreover, there is no difference between Islamic and conventional banks in the relation between liquidity creation and bank performance. Research limitations/implications The data are limited to the period 2011-2016; the period of this study was selected based on yearly data availability from the data source. Accounting measures were used to study the effect of liquidity creation on bank profitability, and the market-based measures were excluded, as there is no uniform sources in these countries that can be used to collect market-based data. Practical implications Bank managers must reach a trade-off between the advantages and disadvantages of liquidity creation, as well as consider the negative relationship between liquidity creation and bank performance when making their decisions. Originality/value First, to the best of the authors’ knowledge, this work is the first to analyse the relationship between the liquidity creation and performance of conventional and Islamic banks in MENA. Second, this study uses a sample of Islamic and conventional banks in MENA that have detailed information on the Orbis Bank Focus dataset, which is the most comprehensive database of commercial banks in the MENA region.

The main contribution of this paper is to report on the impact of intellectual capital (IC) on financial performance of Islamic banks operating in the UK. Two distinct measures, return on average assets (ROAA) and return on average equity (ROAE) are used to measure the financial performance. The paper also controls for number of employees and bank size. Results based on the regression analysis suggest that IC efficiency proxied by the value added intellectual coefficient (VAIC) relates positively with financial performance of Islamic banks in the UK. The analysis further suggests that bank size and number of employees equally contribute in banks' achieving higher financial performance. Additionally, the paper further ghettoises sub-components of IC namely; capital employed, human capital and structural capital to analyse the discrete impact of these IC constituents on financial performance. The analysis of the sub components suggests a positive relationship between physical and financial capital employed efficiency, human capital efficiency and performance.

This paper examines the role of macro and microeconomic determinants in bank profitability in the EU-27. To identify how defined variables can affect profitability, a regression model was constructed with a multicollinearity condition, with multicollinearity below the defined value. Data were collected based on 3,257 bank balance sheets and the World Bank and ORBIS Bank Focus databases. Based on a literature review, we have stated that the bank sector profitability is measured by Net Interest Margin (NIM), Return on Average Assets (ROAA), and Return on Average Equity (ROAE) as dependent variables. The statistical model showed no acceptable solution for Return on Average Equity. Four allowable solutions were found for the profitability of average assets and six solutions for net interest margin. Lastly, the results indicate a clear effect of rising inflation on increasing bank interest rates, and therefore higher interest margins. A healthy economy, also characterized by a growing GDP rate, also positively affects the interest margin.

Determinants of Banks’ Profitability: Evidence from EU 27 Banking Systems

This paper analyzes the impact of banks' risk to the profitability of Islamic banks and to identify what risks play the non-trivial role. To this objective, 75 Islamic banks in 24 countries in 2015 have been studied. A series of bank risks, industry-specific and macroeconomic indicators are combined to explain the profitability of Islamic banking as measured by Return on Average Assets (ROAA), Return on Average Equity (ROAE), and Value Added (VA). The bank risks comprise credit risk, insolvency risk, liquidity risk, and operational risk. Having used robust linear regressions, the results indicate that all four types of risk influence bank's profitability. Operational risk is the risk that plays the most important role in influencing banks' profitability, whether measured by ROAA, ROAE or profit before taxes over the total asset (PBTTA). On the other hand, credit risk, liquidity, and insolvency do not conclusively increase or decrease Islamic bank profitability. Macroeconomic conditions, measured by inflation, actually has a positive impact on the profitability of Islamic banks. This indicates that operational risks and macroeconomic stability should be given primary attention in increasing bank's profitability.

China's banking system has undergone gradual reform since 1978, with a view to improving efficiency and resource allocation. Recent reforms have focused on allowing banks to list some shares on domestic and foreign exchanges, greater foreign equity participation in Chinese banks and the establishment of new rural financial institutions. To assess whether these objectives have been achieved, this study looks at how well different types of Chinese banks have performed between 1999 and 2006, and tests for the factors influencing performance. It also evaluates four measures of performance to identify which one, if any, is superior. The independent variables include the standard financial ratios, those which reflect more recent reforms (listing, bank type, the extent of foreign ownership) and macroeconomic variables. The results suggest Economic Value Added (EVA) and the Net Interest Margin (NIM) do better than the more conventional measures of profitability, namely Return On Average Equity (ROAE) and Return On Average Assets (ROAA). Some macroeconomic variables and financial ratios are significant with the expected signs. Though the type of bank is influential, bank size is not. Neither the percentage of foreign ownership nor bank listings has a discernable effect.

This study investigates the impact of liquidity risk on the performance of commercial banks in Sri Lanka by analysing secondary panel data of six systemically important banks in the Sri Lankan financial system from 2006 to 2016. The objective of this study is to identify the significant liquidity risk factors and the impact of them on both top line and bottom line performance indicators of commercial banks. Researchers find that liquidity gap and non-performing loan ratio are the significant proxies for liquidity risk. Multiple regression analysis reveals that liquidity risk negatively and significantly affects bottom lines Return on Average Assets (ROAA) and Return on Average Equity (ROAE), whilst positively affects the top line Net Interest Margin (NIM) of the commercial banks. The findings of this study suggest that expenses of the banks should be controlled with better liquidity management to enhance bottom line performances.

This study examines the threshold effect in the nonperforming loans–profitability nexus within the Nigerian banking industry. Using the innovative dynamic panel threshold of Seo, Kim, and Kim (2019), the work documents threshold levels of 3.5% and 5.0% of nonperforming loans for return on average assets (ROAA) and return on average equity (ROAE), respectively. These levels of nonperforming loans ensure equilibrium profitability without stability trade‐off in the industry. Similarly, the robust models suggest the threshold of 5.2% and 2.81% of impaired loans for optimal ROAA and ROAE, respectively. The results are important for policy formulations. It is recommended that the Central Bank of Nigeria (CBN) should review the 5% threshold nonperforming loans adopted in the industry in 2019 prudential guidelines to ensure stability in the Nigerian banking industry.

The purpose of this study is to elaborate whether the determinants of commercial banks’ profitability affect the financial performance of commercial banks in Kosovo. Performance evaluation of commercial banks in Kosovo is done through measurement of financial performance indicators such as Return on Average Equity (ROAE), Return on Average Assets (ROAA) and Net Interest Margin (NIM). The study identifies the main factors that affect the profitability of commercial banks through analysis of financial time series and panel data of the banking sector in Kosovo. The study presents three models of financial performance analysis which highlight the influencing factors. The models are based on regression analysis, and the obtained results emphasize the relationship between the determinant factors of commercial banks profitability expressed through analysis of financial performance indicators. The study concludes that commercial banks profitability in Kosovo is driven mainly by internal determinant factors such as capital adequacy, asset quality and management efficiency, while macroeconomic factors have insignificant impact on financial performance of commercial banks.

This study seeks to examine the performance of 37 Bangladeshi commercial banks between 1997 and 2004. The empirical findings of this study suggest that bank specific characteristics, in particular loans intensity, credit risk, and cost have positive and significant impacts on bank performance, while non‐interest income exhibits negative relationship with bank profitability. During the period under study the results suggest that the impact of size is not uniform across the various measures employed. The empirical findings suggest that size has a negative impact on return on average equity (ROAE), while the opposite is true for return on average assets (ROAA) and net interest margins (NIM). As for the impact of macroeconomic indicators, we conclude that the variables have no significant impact on bank profitability, except for inflation which has a negative relationship with Bangladeshi banks profitability.

In this paper, the fixed effects method known as the least squares dummy variable (LSDV) technique was applied to investigate the possibility of a trade-off between bank profitability indicators and banking outreach (expanding access to banking services) by analysing a panel of 10 South African Development Countries (SADC). Of the fifteen SADC member countries (Angola, Botswana, Democratic Republic Of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, United Republic Of Tanzania, Zambia, and Zimbabwe), five (Botswana, Congo, Lesotho, Malawi and Zimbabwe) had to be excluded for lack of consistent data throughout our period of analysis. The author investigates whether expanding banking access and pursuing profitability are complementary goals in the same direction or are two conflicting goals. For estimation robustness, two indicators of profitability were used namely return on average assets (ROAA) and return on average equity (ROAE). IMF Financial Access Survey (FAS) data for each country namely, deposit accounts per capita and the number of bank branches per 1000 km2 were used as indicators of bank outreach or access. Operational inefficiency, insolvency risk and credit risk were found to exert a negative impact on both ROA and ROE. Net interest margin a proxy for interest based services and off-balance sheet activities were statistically significant and positively related with bank profitability. Central to the study was that expanding banking access was found to exert a statistically significant and positive impact on profitability for some SADC countries. However, contrary to the author`s expectation, for some countries, the indicator of outreach was inversely related with the chosen indicators of profitability. The researcher however, argues that any form of intervention aimed at improving the state of access to those financially excluded cannot be evaluated from a cost or profit perspective alone but must be all-inclusive taking into account the social and economic benefits to the society as a whole. The major purpose of financial inclusion is to reach the poor and disadvantaged segments of the population. Hence, the author cautions that although attaining high profitability is an important policy objective for ensuring sustainability and financial stability, it is certainly not the only priority. Access to banking services, social inclusion and consumer protection are equally important policy priorities. There is therefore need for government support and a general holistic stakeholder approach to the problem of banking exclusion in order to generate solutions that achieve both profitability and outreach in a balanced fashion.