Bank Profitability Research Articles

The Influence of The Level of Credit Risk and Liquidity Risk on Profitability in Banking Listed on The Bei for the 2018-2021 Period

The type of research used is descriptive quantitative, the type of data used is secondary data obtained from financial report data, research location via the official website of the Indonesia Stock Exchange (www. Idx.id). The population and sample in this research are banking companies with a sample size of 35 banking companies listed on the Indonesia Stock Exchange for the 2018-2021 period. The research results show that Non Performing loans (NPL) have a negative and significant effect on Return On Assets (ROA) with a t-value < t-table. Loan to Deposit Ratio (LDR) has a significant effect on Return On Assets (ROA) with t-count > t-table. Simultaneous research results show that Non Performing Loans, Loan to Deposit Ratio to Return On Assets with a significant value is smaller than the standard value, the calculated f value is > f fable. The influence of the level of credit risk and liquidity risk on profitability in banks listed on the Indonesian Stock Exchange (BEI) for the 2018-2021 period is 28.2%.

Pengaruh Profitabilitas dan Likuiditas Terhadap Zakat Perusahaan Pada Bank Umum Syariah di Indonesia

This research aims to determine the influence of profitability and liquidity on corporate zakat (Islamic almsgiving) for Islamic Commercial Banks in the period of 2021-2023 in Indonesia. The population of this study consists of Islamic Commercial Banks operating in Indonesia. The research employs purposive sampling as the sampling method. After selection, the sample includes four Islamic Commercial Banks: Bank Muamalat Indonesia, Bank Syariah Indonesia, Bank Mega Syariah, and Bank Panin Dubai Syariah. This research follows a quantitative approach using multiple regression analysis, and the analysis is conducted using SPSS. The research results indicate that the profitability variables, proxied by Return On Equity (ROE) and the Operating Expenses to Operating Income Ratio (BOPO), and the liquidity variable, proxied by Financing to Deposit Ratio (FDR), collectively have a positive and significant impact on corporate zakat. In partial testing, the Profitability variable, which is proxied by Return On Equity (ROE), has a significant positive influence on the company's zakat expenditure, while the Operating Costs, Operating Income (BOPO) has no effect on the company's zakat expenditure, and the Liquidity variable, which is proxied by the Financing to Deposit Ratio. (FDR) has a significant negative effect on company zakat expenditure. This explains how the profitability and liquidity of Islamic banks can affect their social obligations in paying corporate zakat, which is an important aspect of the Islamic economy in Indonesia.

Non-performing loans and their impact on the profitability of Peruvian Municipal Savings and Loan Banks

Non-performing loans and their impact on the profitability of Peruvian Municipal Savings and Loan Banks

Assessing the Impact of COVID-19 on Banks’ Profitability: The Role of Size in an Emerging Economy

This work investigates the impact of the COVID-19 crisis on Brazilian banks’ profitability, and if the impact was stronger for smaller banks. Brazil was highly affected by COVID-19 crisis, has a highly concentrated banking sector, and is well known for the high technology of its financial market. We collected information from 42 banks on the quarterly financial statements available in Brazilian Central Banks during the period between January/2016 and March/2021. We ran Arellano–Bond generalized method of moments dynamic panel regression and our results confirm that the COVID-19 crisis negatively impacted the profitability of the Brazilian banks and that large banks were the most affected. Brazilian government adopted anti-crisis measures that relaxed regulations in order to decrease credit spreads. This may have alleviated the impact of the crises on small banks and also encouraged the appearance of fintech companies, which competed directly with banks.

Bank FinTech and bank performance: evidence from an emerging market

Purpose This study aims to explore the effects of internal financial technology (FinTech) integration within Jordanian banks on their performance metrics, specifically focusing on profitability, risk-taking and stock returns. Design/methodology/approach Using panel data analysis, this study investigates the financial performance of 13 listed commercial banks in Jordan over a decade, from 2010 to 2019, to examine the hypothesized impacts of bank FinTech developments. In addition, several robustness tests addressing potential issues of endogeneity and autocorrelation are conducted to enhance the reliability of the results. Findings The results reveal that the bank FinTech development significantly enhances bank profitability and inversely affects risk-taking levels, indicating a substantial and positive impact on financial performance and stability. However, the results suggest no significant evidence of the effect of bank FinTech development on stock return. Practical implications The findings advocate for Jordanian commercial banks to continue and expand their investment in FinTech innovations, highlighting the crucial role these technologies play in enhancing financial performance and reducing bank risks. Additionally, these findings suggest that regulatory bodies and policymakers should develop and enhance institutional and regulatory environments to support and guide the FinTech evolution within the banking sector. Originality/value This study sheds light on the relatively under-researched area of internal bank FinTech. It provides critical insights into how FinTech integration within banks contributes to their profitability and stability, offering another perspective that enriches the FinTech literature. This contribution is essential for devising future strategies, developing theoretical frameworks and informing policy decisions in the FinTech domain.

Geopolitical risk and banking performance: evidence from emerging economies

PurposeThis study delves into the critical issue of banks' stability and profitability, which are crucial elements for fostering economic growth and preserving depositor confidence. Specifically, we scrutinize the impact of geopolitical risks on the profitability and solvency of banks operating in emerging economies across the Middle East and Africa.Design/methodology/approachEmploying a two-step Generalized Method of Moments (GMM) approach, we analyze a comprehensive dataset comprising 125 banks spanning 13 emerging economies in the Middle East and Africa, covering the period from 2003 to 2019.FindingsOur study reveals a significant sensitivity of Middle Eastern banks to geopolitical risks, wherein effective anticipation or adaptation to these risks positively influences bank performance. Conversely, the impact of geopolitical risk on African banking profitability appears inconclusive and statistically insignificant. These nuanced findings underscore the complex interplay between geopolitical dynamics and financial performance in diverse regional contexts, with implications for policymakers and industry stakeholders.Practical implicationsOur findings underscore the need for nuanced policy responses and risk management strategies tailored to the unique challenges posed by geopolitical dynamics in emerging markets. Furthermore, they highlight the importance of continued research efforts to deepen our understanding of these complex interactions and inform more effective decision-making in the financial sector.Originality/valueAmidst growing recognition of the importance of geopolitical risks in financial markets, empirical studies exploring their precise impact on bank performance remain scarce. This study fills this gap by offering a pioneering investigation into the influence of geopolitical risks on bank profitability and solvency, using advanced econometric techniques and a substantial, diverse sample of banks in emerging economies across the Middle East and Africa.

Profitability in State-Owned Enterprises Banks Listed on the Indonesian Stock Exchange 2019-2023 as an Effect of CAR, TATO, and NPL

The world of banking plays a crucial role in society and the government. Banks serve as a vital indicator of a country's progress, making them the lifeblood of its economy. As domestic banking becomes more advanced, the competition between banks is intensifying. Just as a financial analyst would recommend, every bank must strive to secure funds and leverage their resources, management, and technology to achieve optimal efficiency and effectiveness in combating competition. This research seeks to analyze the impact of CAR, total asset turn over (TATO), and NPL on profitability (ROA) in state-owned banks listed on the Indonesia Stock Exchange from 2019 to 2023. The data analysis technique in this research utilizes path analysis. Through data collection, a total of 4 state-owned banks were included in this research. These banks have published financial reports for a span of 5 years, resulting in a dataset of 20 data points. The data collected was analyzed using a tool commonly employed by financial analysts to conduct panel data linear regression analysis. According to the research findings, it is evident that CAR has a noteworthy positive impact on Profitability (ROA). Additionally, TATO also has a positive and significant influence on Profitability (ROA). On the other hand, NPL exhibits a negative and significant effect on Profitability (ROA).

Market Concentration, Price Dynamics, and Profitability in Indonesian Banking: An Empirical Investigation

This research delves into Indonesia’s banking sector’s competitive landscape, examining bank mergers’ effects on performance through the Structure Conduct and Performance (SCP) hypothesis. By reshaping market structure, bank mergers influence subsequent bank behavior and performance. The findings highlight a discernible pattern: an uptick in market concentration accompanies a decline in prices within the banking sector. This implies that mergers often yield economies of scale, enabling banks to offer more competitive rates. However, this reduction in prices directly impacts bank profitability. Moreover, the concentration ratio, a pivotal metric in market analysis, emerges as a significant gauge of industry competition. Serving as a structural measure of competition, the concentration ratio depicts the market share held by leading banks. Intriguingly, diminished competition, as indicated by higher concentration ratios, correlates with decreased profitability for banks operating within this framework. This exploration of Indonesia’s banking sector reveals a nuanced interplay between market structure, bank conduct, and overall performance. Through the SCP hypothesis, the study elucidates how seemingly routine bank mergers can trigger a cascade of effects, influencing market dynamics, profitability, and competitive positioning. Based on thorough analysis, the study furnishes strategic insights for policymakers, industry stakeholders, and the banking community, offering a comprehensive understanding of the ramifications of market shifts and guiding strategies to navigate Indonesia’s banking landscape adeptly.

The impact of capital on bank profitability during the COVID-19 pandemic

This study examines how various forms of capital in the years leading up to the COVID-19 pandemic affected bank profitability during the crisis in emerging economies. Using data from 819 banks in 26 countries during the 2019–2020 period, we find that banks entering the crisis with a superior capital position performed better during the pandemic. High-quality capital metrics such as Tier 1 capital and total regulatory capital ratios, not the standard leverage ratio, possess the capacity to affect bank profitability. These results are robust after controlling for Basel III liquidity requirements. We also find that the capital-profitability relationship is stronger for larger banks and for those that entered the crisis with better liquidity and credit risk position. Overall, our results imply that focusing on capital quality can help reduce the adverse effect of an external shock on bank performance.

A comparative study on bank income diversification: which non-interest income component is beneficial?

PurposeThis paper aims to conduct a comparative study on the impact of income diversification and the main non-interest components on banks’ financial performance and risk-adjusted profitability in China and Egypt.Design/methodology/approachThis study uses both static and dynamic panel regression analyses on a sample of Egyptian and Chinese banks from 2009 to 2022.FindingsIncome diversification yields positive effects on bank profitability in Egypt and China. Trading income consistently exhibits a significant positive influence on bank profitability in both nations. Conversely, fee-based income positively impacts bank profitability in China, whereas in Egypt, this effect is observed under dynamic-based regression models. On the contrary, income diversification does not consistently increase risk-adjusted profitability in both countries, especially Egypt.Originality/valueTo the best of the authors’ knowledge, this is the first study to examine the impact of income diversification on Egyptian bank performance while identifying the most significant non-interest income components. In addition, the comparative analysis conducted in this study reveals the positioning of China, the largest economy among emerging countries, in terms of the degree of income diversification, its impact on bank profitability and the extent to which non-interest income components contribute to bank profitability when compared with Egypt, representing an emerging country characterised by different levels of bank market power, financial infrastructure and expertise. Findings hold significant implications, suggesting that bank managers and policymakers should prioritise diversifying income sources, particularly through fee-based services and trading activities in China, and trading activities in Egypt, to enhance financial profitability.

The impact of diversification on the profitability and risk of Chinese banks: evidence from a semiparametric approach

AbstractThis paper analyzes the effects of banking diversification and focus strategies on the profitability and risk of Chinese banks in the post-crisis years (2008–2019). For this purpose, semiparametric estimates are used. The main results indicate that Chinese banks do not gain much benefit in terms of profitability and risk from following income or asset diversification strategies, although the former are more beneficial than the latter. These results have important implications for the design of specific diversification strategies for different types of banks. Results suggest that state-owned banks could benefit from a greater degree of diversification to obtain more profits and simultaneously decrease their risk levels, while national shareholding commercial banks and city commercial banks should evaluate these strategies with more caution as the benefits from them are less obvious.

Manifestations of loan growth – profitability and non-performing loans – a study of the Indian banking sector

PurposeAfter half a decade of balance sheet clean-up prompted by the Reserve Bank of India’s (RBI) asset quality review (AQR), Indian banks are back on track for increased loan growth. Being a financial vehicle for the economy, loan growth cannot be put on hold for a long period of time. But it is also important to understand that loan growth carries an inherent risk of default. A trade-off exists between loan growth, non-performing loans (NPLs) and bank profitability. Our study highlights the importance of understanding this relationship.Design/methodology/approachFor our study, we have taken a sample of India’s private and public sector banks. The dataset consists of the financials of our sample for the period 2006–2021. Two-step differenced generalized method of moments (SYS-GMM) estimation has been used to establish the relationship. The mediating role of NPLs in the relationship between loan growth and profitability is examined by the mediation analysis using structural equation modeling (SEM) and the Sobel test. We have used Stata 16.1 for the analysis of our dataset.FindingsThe findings of our study suggest that bank lending is a major contributor to the bank’s earnings. Loan growth after a certain point has a negative impact on profitability, and it also adds to the NPLs of the bank. The study result indicates that moderate loan growth is key to steady and stable growth in the Indian banking industry.Practical implicationsOur study is directed toward understanding the positive and negative manifestations of loan growth. We develop a framework to understand this relationship and then empirically prove it. The study is beneficial for employees and policymakers alike to minimize the negative impact of loan growth.Originality/valueThe issue of the simultaneous impact of loan growth on NPLs and profitability has not been studied in the Indian banking sector. Also, this study adds to the present literature by studying the mediation effect of the NPLs on the loan growth and profitability relationship.

Assessing the Impact of Non-Performing Loans and Capital Adequacy on Bank Profitability for the Case of North Macedonia

This study investigates the influence of non-performing loans on the profitability of banks operating in the Republic of North Macedonia, providing insights into the specific dynamics of the banking sector. Non-Performing Loans (NPL) represent a critical concern for banking institutions worldwide, reflecting potential credit risk and weakening of financial stability. In the context of North Macedonia, where the banking sector has a significant function in driving economic growth and development, understanding the relationship between NPLs and profitability is of great importance. Also, taking into consideration the importance of the ratio of Capital to Risk Weighted Assets (CRWA), this study also investigates the relationship between Capital to RWA and bank profitability. By employing an autoregressive distributed lag (ADL) model, the study intends to uncover the trends and the relationship between variables, by also considering how past values affect the current values of the bank profitability. The results of the analysis disclose a highly significant negative influence of the NPLs on the bank profitability indicators, such as Return on Equity (ROE) and Return on Assets (ROA). Thus, the findings reveal important insights for the policymakers and the banking industry in North Macedonia, aiding in the formulation of effective risk management strategies and regulatory policies aimed at mitigating the adverse effects of NPLs and capital needs on bank profitability. At the same time, the study is expected to contribute to the existing body of literature on the topic by offering empirical evidence specific for the Macedonian banking sector, thus filling the gap in the research landscape.

Profitability of Islamic Banks in Pakistan: An Empirical Analysis

The main object of this study is to investigate the Profitability of Islamic banks in Pakistan. The data duration of the study is 2006-2021 and penal regression analysis is used to test the Profitability of Islamic banks in the context of Pakistan. This study applied the Variance Inflation Factor (VIF), Breusch-Godfrey Serial Correlation LM and Breusch-Pagan-Godfrey tests to check the multicollinearity autocorrelation and heteroscedasticity respectively. According to the Hausman test, Redundant Effect Test is suitable for the current study. Results of the Random Effect Method indicate that the GDP and BS have statistically significant as well as positive effects on the Return on Assets (ROA). While the IR, NPL, and INF have statistically significant and negative effect on the Return on Assets (ROA). Results of the study suggest that factors that have a negative effect on the ROA, like interest rate, non-performing loan, and the inflation rate would be judgmentally investigated by the Islamic Bankers of Pakistan through structuring the bank’s policies. That would give support in the banks’ better performance and enhanced profitability, which would directly improve to their significant role in the economy.

Employee Efficiency and Corporate Competitiveness in Selected Microfinance Banks in Nigeria

The purpose of the study was to examine employee efficiency and corporate competitiveness in selected Microfinance Banks in Nigeria. The design employed in this study was descriptive and correlational research design. The population of this study was one hundred (100) staff of Unical Microfinance bank in Calabar. The study adopted simple random sampling to select four branches. A total of eighty copies was correctly filled and returned as a sample size of the study. Data for this study were gathered from primary source and through the use of structured questionnaires from respondents of the microfinance banks in Calabar. The study employed Pearson Product Moment Correlation (PPMC) analysis to measure the relationship between variables tested in the study. Based on the analysis, the findings revealed that quality of work had a significant effect on market share of Unical microfinance bank, accuracy had a significant effect on quality of service Unical microfinance bank, timeliness had a significant effect on profitability of Unical microfinance bank, and wastage and elimination had a significant effect on market leadership of Unical microfinance bank in Calabar. Efficiency can be seen as the measure or ratio of firm’s sundry resources that contribute to the performance of the firm during a process. It is concluded that efficiency is a critical factor that enhances workers’ productivity.

Impact of size of banks and insurance companies on their profitability in Bosnia and Herzegovina

Abstract In this paper, we investigate the determinants of bank profitability by examining endogenous factors used to measure the size of a financial institution. We underscore the significance of bank employees in embodying institutional values and playing a pivotal role in sales channels, as well as the impact of technological integration on customer expectations and workforce dynamics. Utilizing a dataset from regulatory agencies, which includes information from 47 banks and insurance companies in Bosnia and Herzegovina for the year 2021, the study explores the relationship between the independent variables which include the volume of total assets and the number of employees, and the dependent variable for profitability. By calculating Return on Equity (ROE) and employing a multiple linear regression model, the study finds that a statistically significant relation between independent variables and the dependent variable does not exist. Despite this, the research highlights the need for further investigation, particularly considering the differentiation between banks and insurance companies, the potential impact of outliers, and the broader economic context of the year studied. The findings suggest that a more refined model, possibly incorporating panel data, could provide clearer insights into the profitability determinants of financial institutions in Bosnia and Herzegovina.

Leveraging Digitalization and Servitization to Improve Financial Performance: An Empirical Analysis

This research investigates the interplay between digitalization, servitization, and Corporate Social Responsibility (CSR) in influencing the financial performance of Pakistani banks. The study addresses a critical gap by examining how these factors combine to impact bank profitability in the contemporary landscape of digital transformation and evolving customer demands. A quantitative approach is employed, utilizing survey data collected from branch managers in Pakistani banks. Standardized scales measure digitalization, servitization, CSR, and bank performance. The findings demonstrate a positive direct effect of digitalization on bank performance. Furthermore, servitization strengthens this positive impact, suggesting that banks offering a comprehensive suite of services alongside traditional products achieve superior financial outcomes. Notably, the study reveals no significant short-term contribution of CSR to a bank's financial performance. Thus, the study sheds light on the crucial role of servitization in amplifying the positive effects of digitalization on bank performance. By strategically integrating services with products, banks can leverage digital technologies to become more data-driven and enhance their financial health.

The The impact of credit risk on the profitability of banks in South Africa

The purpose of this study is to determine the impact of credit risk on the profitability of commercial banks in South Africa. This study purposefully chose five banks that control more than 70 % of the market in South Africa. The secondary balanced panel data was gathered from each bank's audited annual financial statements over a ten years (2013-2022). This study was conducted using an explanatory study as our research design. The return on equity was used to measure profitability, while the credit loss ratio, the ratio of loss allowances to total loans and advances, and the ratio of total loans and advances to total assets were used to assess credit risk for each bank. The Variance Inflation Factor was used to test for multicollinearity, while Hausman model specification test was used to determine the preferred model for the study. The data were analysed using a balanced panel data regression with the random effects model. The study's findings show that the credit loss ratio has a positive effect on profitability, whereas the ratio of loss allowances to total loans and advances has a negative effect. The ratio of total loans to total assets was discovered to have a positive and significant relationship with bank profitability. As a result, this study concluded that banks should be aggressive in deploying deposits to extend credit to customers while maintaining effective credit management practices.

ANALISIS PROFITABILITAS PERBANKAN SYARIAH DI NEGARA OKI

The development of the economic system can be seen from the movement of the financial system which has a global impact. Therefore, the role of banking is very important for economies around the world. The aim of this research is to assess the financial performance of Islamic banks in OIC member countries (Indonesia, Malaysia, Pakistan, United Arab Emirates and Saudi Arabia) through profitability. The measure of profitability is to use the ROA ratio. The data was processed using panel data regression testing. The results of data analysis show that CAR and sukuk have a significant positive effect on profitability, while BOPO has a significant negative effect on the profitability of sharia banks in OIC member countries during the 2018 - 2022 period. Only the inflation variable has not significantly influenced the profitability of sharia banks in OIC member countries during the period. 2018 – 2022. The implication of this research is that Islamic banks must strive to increase the CAR ratio and reduce the BOPO ratio because it can significantly affect the level of bank profitability. Apart from that, Islamic banks also continue to increase sukuk issuance because it can encourage increased profits.

Analisis Pengaruh Pendapatan Ijaroh Muntahiyyah Bit Tamlik dan Murabahah Terhadap Tingkat Profitabilitas Pada PT Bank Syariah Indonesia Periode 2021-2023

This research aims to determine the effect of IMBT and Murabahah on the level of profitability of Islamic banks. Sharia Commercial Bank is a sharia bank which in its activities provides services in payment traffic. In Islamic banks there are several contracts used in transactions, namely: Mudharabah, Murabahah, Salam, Istisna, Ijaroh, Wadiah and so on. One of the things done in the banking business is to gain profit/profitability. Profitability is the bank's ability to obtain profits, one of the basic tools is using ROA (Return On Assets). This research is quantitative descriptive research, based on secondary data taken from PT Bank Syariah Indonesia publication reports for 2021-2023, then data analysis techniques were processed using the SPSS application by carrying out classic assumption tests and multiple regression tests. The research results show that IMBT does not have a significant influence on profitability, whereas on the other hand, murabahah has a significant influence on the level of profitability of Bank Syariah Indonesia in 2021-2023