Abstract
The determinants of bank profitability are very important, as bank profitability significantly affects the economies of countries. This study aims to examine the internal determinants (bank-specific characteristics) and external determinants (macroeconomic factors and government variables) of bank profitability in Iraq. The study uses unbalanced panel data from 18 banks in Iraq for thirteen years, from 2005 to 2017. The relationship is estimated using a fixed effects approach. The study selected 18 conventional banks considering their data availability in the period from 2005 to 2017. Based on the panel data method, the results show that bank size, the equity to total assets and total loans to total assets ratios, GDP growth, and government effectiveness have a significant and positive impact on the profitability of Iraqi banks. Meanwhile, credit risk, inflation, interest rate, unemployment, and political instability have a significant negative influence on bank profitability. To the authors’ knowledge, this study is considered one of the earliest studies of its kind, in which the main factors affecting Iraqi bank profitability are determined. That said, this paper makes a significant contribution to the theoretical literature, the industry, and policymakers, so that the performance of Iraqi conventional banks can be improved. Acknowledgments The authors acknowledge the support from Ministry of Higher Education in Iraq, University of Kerbala, AL-Furat AL-Awsat Technical University, and Imam AL-Kadhum College for Islamic Studies. Furthermore, we appreciate the support by Prof. Dr. Sivarajasingham Selliah, Assistant Prof. Dr. Muhammad Abrar Ul Haq, and Dr. Mohammed Hasan.
Highlights
In the context of most developed and less developed countries, traditional, or conventional, banks have become the basis of financial sectors
The research subject defines the purpose of this study, and, in this range, the determinants of bank performance were analyzed using a data approach and a panel of eighteen Iraqi banks for 13 years
An unbalanced panel of 220 observations was used for econometric analysis
Summary
In the context of most developed and less developed countries, traditional, or conventional, banks have become the basis of financial sectors. In developing and emerging market countries, banks stand out as dominant financial institutions. Banks hold a substantial amount of deposits from households, private companies, government sectors, and other institutions. Its goals achieved, since banks can be used to regulate the money supply in performing their primary function of mobilizing financial resources in the economy. Banks are key players in providing funds to fiscal deficit institutions in the economy. In developing countries, such as Iraq, the critical role of banks is to allocate financial resources. The private sector deemed vulnerable because of several reasons that cause bank credit restrictions with the later-effect of financial fluctuations in the region (Pontines, 2008). The analysis of bank performance determinants can serve as guidance for policymakers and regulators so that measures can be taken to stabilize the financial situation
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